Outset and foremost, I am neither soliciting, nor deserve, anyone’s pity. I have busied and prospered from the American Dream. A first-generation American, I was raised in a South Bronx walk-up by my Shine immigrant parents, attended New York City public schools wholly college, and graduated from Columbia Business School in 1967 with a refusing net worth and a young child at home.
I rose through the ranks at Goldman, Sachs & Co., which I progressive in late 1991 to launch Omega Advisors, Inc., the hedge fund unshaken where I, together with 32 colleagues, still work. Opportune beyond my wildest expectations, I am a signatory to the Buffett/Gates Giving Vow, and I expect to donate not half, but substantially all, of my financial wealth to charity upon my passing. One of my guiding principles has long been that (as generally attributed to Andrew Carnegie) a man who be no mores rich, dies disgraced, and I have tried to arrange my affairs so that this can not ever be said of me.
As you may know, last spring, Omega and I settled a case ousted by the SEC against us in September 2016, alleging various violations of federal securities laws. We quiet down because doing so saved us what were projected to be enormous admissible costs, and a substantial diversion of time and attention over possibly years diverse of legal wrangling, had we gone to trial. I am still conflicted over that resolving, but it is water under the bridge.
I am writing this to express my indignation at the egregious attitude in which the agency conducted its investigation of my firm and me. As part of our settlement, we proffered into “no admit, no deny” consents that prohibit us from publicly fighting the basis of the SEC’s case or the legitimacy of those allegations, and from commenting on the express facts of the case or on the merits of our defenses. The outcome (more below) leave have to speak for itself. But I am free to express my views on how the agency fingered this matter without violating those prohibitions.
Just to be palpable, I acknowledge the vital role that the SEC plays in policing the public securities deal ins in the United States and ensuring their integrity. Without the vigorous give someone the sack of that oversight function, public faith in those markets would suffer and they could not act smoothly. My issue is not with the principle but with its application.
When the medium issued broad subpoenas to Omega and me in March 2015, I promptly offered, middle of our lawyers, that if the subpoenas were withdrawn, I would meet gratuitously with the Commission staff and attempt to address all their questions yon the trading and filings at issue. The subpoenas could always be reinstated if I could not answer them that nothing illicit was going on. In that context, I would include voluntarily tolled all relevant statutes of limitations so that the government’s calls regarding Atlas Pipeline Partners (APL, the company at the heart of the case they later filed), in fussy, would not run in the interim. They refused my offer.
We commenced voluminous verify production in response to the subpoenas, running up millions of dollars in legal and data-warehousing bring ins. That rolling production was substantially completed by the end of 2015, and the Wells notice tracked in mid-March of the following year.
In September 2016, the SEC’s director of enforcement commended our counsel that the agency would not agree to settle without, magnitude other things, an industry bar. He must have realized that this intent have been tantamount to an admission of wrongdoing, effectively ending my on the other hand spotless, 50-year career on Wall Street in disgrace. That was a non-starter for me, and I rejected their present.
The Commission promptly filed suit, alleging, most notably, that we had interchanged in the securities of APL on the basis of material, non-public information, and less sensationally, that we had failed to contrive timely filings of certain securities holdings (but notably, not in APL). When we cultivated our investors, capital outflows (which ultimately aggregated to billions of dollars in assets at the mercy of management) accelerated.
Even after announcing in May 2017 the settlement appellations to which both sides finally agreed – which included no hustle (or officer-and-director) suspension or bar, no admission of wrongdoing, a financial payment that was sternly half the original ask, an obey-the-law injunction, and various compliance enhancements – we remained to bleed assets, due, in large part, to the pall cast on us by the government’s unproven assertions. It seems that such damage, once inflicted, cannot be devastated.
Adding salt to the wound, while “no admit, no deny” materially circumscribes what I can say all round the case and its disposition, it apparently doesn’t tie the SEC’s hands to quite the same caste. In a statement released to the press shortly after our settlement, the agency’s decree director of enforcement characterized the financial payment to which Omega and I had concurred as having been levied for our “misconduct”, gratuitously omitting the word “described” even though, since the case was settled, the complaint’s allegations not ever had to be, and were never, proven in court. I guess that all-important account didn’t mesh well with the agency’s narrative.
At various dots along the course of this saga, our lawyers informed the agency’s stick of the harm that these allegations were inflicting – on my business and on the authority prospects and earning opportunities of scores of honest, innocent, hardworking Omega hands – and of the protracted investigation’s potential implications for Omega’s continued viability as a growing concern. Their entreaties fell on deaf ears.
Had the staff bid back in September 2016 to settle on the terms we ultimately agreed upon, I order have accepted, if only to preserve what then remained of my calling and avoid the distraction and outsized expense of long-drawn-out litigation, but that grapple with was not then on the table. Instead, after the needless expenditure by both sides of economic and human resources of substantial magnitude, my business is a fraction the size and profitability it was, and the sway got what it could have had, for the asking, eight or nine months earlier. Is this any way to direct the affairs of an ostensibly preeminent U.S. regulatory agency?
It seems logically corroborate to me that something transpired between September 2016 and March 2017 that led to the Commission’s dramatically downwardly-revised community offer. Despite numerous attempts to ferret it out, I have been inefficacious in getting a response, either from the current chairman or from his predecessor who oversaw my case (and who told me, when I saw her at a conference after she left corporation, that even innocent people often find settling with the management preferable to hazarding the system). As an American taxpayer, I believe that I earn an answer to my question. And as an analytical person, it is hard for me to reconcile the significant, blood-sport annihilation of my business that this matter has occasioned without understanding the actives behind the resolution from the Commission’s perspective.
But equally to the point, now that it’s all remaining, where do I go for redress? My colleagues and I are left to pick up the pieces, but as we do, the words of Raymond Donovan, Ronald Reagan’s erstwhile Labor Secretary and the first sitting cabinet officer to be indicted resonate with me. Although his was a articulate criminal matter and mine a federal civil one, the sentiment he expressed peals just as true here. When he and his co-defendants were acquitted at trial run of all charges, he said: “It’s a cruel thing they did to me. The question is, should this indictment accept ever been brought? What office do I go to, to get my reputation back? Who hand down reimburse my company for the economic jail it has been in for two-and-a-half years?”
Novel office of a different government, but his questions are just as relevant today as they were 30 years ago. Helpless to force an answer to my question, it appears that I’m expected, like so assorted before me, to just suck it up and move on. Chalk up one more to regulatory unaccountability. I require I were wired that way.
Given the vast resources of the federal direction and the prospect of potentially ruinous legal costs and collateral damage that confront any defendant, it is infinitesimal wonder that so many opt to throw in the towel and settle, rather than danger the vagaries and expense of extended litigation. In the end, the regulators, taxpayer-funded and shielded for the most be involved in by sovereign immunity, not meaningfully accountable to anyone but themselves, pay no price for overreaching – a standard case of moral hazard. On the civil side, at least, that is a desperate situation that cries out for remediation.
My suggestions: first, that when the ministry sues an individual or firm and loses in court or before a regulatory bench, the government reimburse its target’s legal expenses to the extent not covered by guarantee (just as we, as taxpayers, already foot the government’s bills); and second, that in cases be mine, once the dust has settled and the jockeying for position has ended, the administration show its hand privately to its target and demonstrate why it thought it had a case to start out with.
These two changes – the first a matter of cost-shifting, the second a topic of the salutary benefits of sunshine – might not solve all that is wrong with our regulatory procedure, but they would be a good start.