Publish to KM Space – Page 14 – Compliance Building

Getting Cleaned by Oil Spill Stock Scams

I doubt you have missed the news about the oil spill mess in the Gulf of Mexico. The scammers have clearly noticed and sense an opportunity to make a quick buck.

Some companies may issue press releases, or send unsolicited faxes or spam emails that might include:

Claims to have products or technologies that are effective in remediating oil spills or restoring the eco-system
Mention of contracts or expected contracts with BP, formerly British Petroleum, that will aid the cleanup effort
Claims that the company is providing technical assistance or expertise to BP or to U.S. government agencies such as the Coast Guard or the Environmental Protection Agency

One of the first identified scam enforcement actions, the SEC suspended the trading in ACT Clean Technologies.

The Commission temporarily suspended trading in the securities of ACT because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things: (1) British Petroleum’s purported expression of interest in using a so-called oil fluidizer technology purportedly licensed to ACT’s wholly-owned subsidiary, American Petroleum Solutions, Inc., for use in cleanup operations in the Gulf of Mexico, and its purported request that field tests be conducted on the oil fluidizer technology; and (2) the purported results of field tests finding that the oil fluidizers are effective for use in clean up efforts in the Gulf of Mexico.

Many of these “investment opportunities” are classic pump-and-dump schemes. Early investors pay people to generate publicity intended to increase demand for company stock and drive up the stock price. They use spam emails, investor bulletin boards, blogs, Twitter and any of the myriad of social networking platforms. When prices rise, the insiders or third party scammers sell their shares and let the price drop.

~~Other stocks involved are MOP Environmental Solutions and Green Bridge Industries.~~

Complaints can be filed on FINRA’s website or on the SEC’s website. You can also call the National Center for Disaster Fraud’s special oil-spill hotline if you suspect an oil spill scam: 1-866-720-5721.

The Financial Times is reporting that the assets of BP executives are being used instead of the typical dead banker emails from Nigeria.

I am the private solicitor for Mr Tony Hayward, the esteemed Chairman and Chief executive of British Petroleum. My client has various personal and family related holdings of BP stock and options. Due to his faithful long standing service to BP the total value of his holdings amounts to in excess of 100m pounds sterling. Mr Heywood is a British citizen but it has been my sorrowful duty to advise him that his personal and family wealth is at great risk of being wrongfully confiscated by US authorities acting extra-territorially under special powers authorised by the US government and with the secret consent of a supine UK political and legal establishment.

Sources:

SEC Announcement – Oil Spill Stock Scams–Don’t Get Cleaned Out by False Cleanup Claims
SEC Release No. 62116 Suspending Trading in ACT Clean Technologies, Inc.
BP Oil Spill Spawns Slick Stock Scams by M.P. McQueen in the Wall Street Journal
A Further Indignity for BP by Neil Hume for ft.com/Alphaville
FBI Press Release – National Center for Disaster Fraud to Coordinate Gulf of Mexico Oil Spill Fraud Complaints
Don’t pump cash into ‘oil spill’ penny stocks By Chuck Jaffe in the Boston Herald

Snake Oil 2.0

From Hugh MacLeod of Gaping Void:

“Anyone who has spent a lot of time studying blogs and Web 2.0, will be fully aware of all the blethering hyperbole that comes with it. Every business model that ever came before is DEAD, to be replaced forever by community! YAY!

Well, some dinosaur business models may be more dead than others, however… life still goes on. People still need to make a buck. People are just as governed by the seven deadly sins as they ever were. Some things never change. All is still vanity.”

Like Hugh, I am a great believer in Web 2.0 and Enterprise 2.0. I just think there is too much hype and too many people trying to sell snake oil.

It’s not about making money and marketing yourself. It’s about sharing ideas, collecting information and connecting with people.

Just about everyone with a substantive blog ends up spending some posts on blogging itself. Even the great criminal defense lawyer and blogger Scott Greenfield will publish an occasional post about blogging.

I’m spending some of that self-reflective time next week at the Enterprise 2.0 conference. My session is on Wednesday afternoon when my panel will talk about policy formation, governance and risk management programs as a critical requirement for the internal and external use of social networking and social media.

Once again the hype comes face to face with the reality of legal requirements and risk. Beware of the snake oil.

Snake Oil 2.0 is by Hugh MacLeod

Social Media and Compliance

Compliance, ethics, and legal executives at Johnson & Johnson, Best Buy, and The Travelers Companies will provide details on their social media policies, programs, and experiences, focusing on a variety of cultural, legal, and disclosure-related issues.

Featuring:

Johnson & Johnson Senior Counsel & Assistant Corporate Secretary Douglas K. Chia
Best Buy Chief Ethics Officer Kathleen Edmond
The Travelers Companies, Inc. SVP, Chief Compliance Officer & Group General Counsel David Baker
Compliance Week Columnist; President, Docket Media LLC; Founder and Editor, Securities Docket, the ubiquitous Bruce Carton (moderator)

I introduced Bruce and the rest of this panel. Then I helped to control the rambunctious crowd.

Travelers is using social media for complaints. You make a claim through their iPhone app. They also use it as a tool for customer service and advertising. They will push out an update on Twitter and Facebook when a catastrophe van in the area of a natural disaster.

Doug is active in social media so he can look at how the company could use social media. Currently their prime use is for their retail products. They are going to where their customers are hanging out. They use the JNJ BTW blog to publish current events at Johnson & Johnson. They are using the corporate twitter (JNJcomm) account to push out information from the shareholder meetings.

Doug highlighted a list of legal, compliance, reputational and logistical issues to consider when a company steps into social media.

Kathleen created her blog to help educate her workforce about what could get you fired. Retail companies have a huge employee turnover. The industry average is close to 100%. If someone is going to tell her story, she wants to be the person to tell it.

Best Buy has lots of social media outlets: Twelpforce, CEO’s Whiteboard, CEO’s Twitter, CMO’s Twitter, CMO’s blog.

She also used internal social media to help develop policies. She used an internal wiki to get feedback on potential policies and issues. She thinks feedback from employees is important in developing good, enforceable policies.

There is the fear of litigation. What you say could cost you and subject you to a lawsuit. Of course, if it’s effective it can save you lots of money by avoiding the bad situations.

It’s tough to work in a conservative company when facing something as innovative as social media.

One company assemble a social media task force to draft a social media policy. They managed to create a user reference manual to give detailed guidelines to the employees.

The audience expressed some concern about the improper disclosure of company information. The panel pointed out that social media is merely a newer avenue for disclosure. People have been able to improperly disclose information for years.

One of the panelists stated that they do block access to social media sites. Another pointed out that employees could just go to their mobile phone or find other ways to waste time. It seems silly to block access to the sites if you are using the sites to market your company.

An interesting audience question was whether a privacy failure at a social media site would impact the company. Could you be tainted by a Facebook failure. It seems remote.

How do you manage the boundaries between personal and professional uses of social media. Make it clear that you are not stating the company position. Don’t use the company name in your handle or profile name. It’s @dougchia, not @J&JDougChia.

Materials:

David Baker:

Powerpoint Presentation

Doug Chia

Kathleen Edmond

Powerpoint Presentation – Social Media session

Enterprise 2.0 Conference in Boston

Next month, I’m attending the Enterprise 2.0 Conference happening June 14-17 at the Westin Boston Waterfront. This will be fifth Enterprise 2.0 conference: 2007, 2008, 2009, 2009 San Francisco.

I’ll be talking about social media policies with these folks:

Mike Gotta, Principal Analyst, Burton Group
Bruce Galinsky, IT Director, Global Insurance Company
Abha Kumar, Principal, Information Technology, Vanguard
Alice Wang, Senior Consultant, Burton Group

Social Media Policies: Practical Advice From The Trenches

Wednesday, June 16 1:00 PM–2:00 PM – (Location: Grand Ballroom D)
Policy formation, governance and risk management programs are a critical requirement as organizations assess implications to the enterprise (e.g., identity assurance, data loss, compliance, e-Discovery, security), arising from internal and external use of social networking and social media. This panel of social media and Enterprise 2.0 practitioners will discuss real-life approaches that address management concerns.

If you’re looking for a discount, PB Works is offering a discounted pass. You can get 30% off a conference pass or a free Expo pass. Register and use the priority code: CNRREB33.

While you’re there, visit PB Works in Booth 609.

(Disclaimer: I’m on an advisory board for PB works.)

About The Enterprise 2.0 Conference
The Enterprise 2.0 Conference explores the integration of Web 2.0 technologies in the enterprise, from both strategic and tactical perspectives. This annual conference and sponsor pavilion focuses on the tools and techniques that best leverage the technical, productive and social aspects of IT and workgroup environments to build a cohesive collaboration strategy and empower a connected workforce. For more information visit: www.e2conf.com.

Martindale-Hubbell Connected Redesign

Lexis-Nexis gave a sneak peak of some upcoming changes to their Martindale- Hubbell Connected social network site for lawyers.

They cleaned up the user interface, with new colors, improved navigation and improved searching.

The current Connected site has been a disappointment. I have a lot of hope for the site because it has the financial backing of Lexis-Nexis and the ginormous content repository of Lexis-Nexis.

They are trying to better combine the public lawyer directory from Martindale.com to the Connected social network. That means they are also redesigning Martindale.com

One surprise was the inclusion of third party advertising. There was an ad for the Cadillc SRX prominently on the page during part of the demonstration. (I wonder what Paul Lippe would think about placing advertisements in Legal OnRamp.)

They are also creating a subscription model so that you need to pay for access to the full features of the site. It sounds like you get full access to Connected if you have a subscription to Martindale. They were dodgy on the details during the demo. You need to be a premium member to create a group and to send messages to people that you are not “connected” to.

The site will try to push content to you based on you interests. Supposedly the more complete your profile, the better focused the information that will be pushed to you.

They added a “Diversity Information” section, sponsored by the Minority Corporate Counsel Association. (Unfortunately, there is not much there for a white guy like me.)

The Martindale Peer Review gets a prominent display and lots of detail on how the rating was compiled. That may resuscitate lawyers’ interest in paying for that AV or BV rating.

They are continuing the emphasis on groups within the community. They went a step further and allowed for subgroups within groups. Personally, I think the use of groups is over-emphasized, merely leading to fragmented content. Groups are great for focusing an filtering information. You only need to filter when there is a big flow of information. Connected has too little information flowing to need many filters. LinkedIn had groups for a long time that merely acted as profile badges. Even now that LinkedIn groups can have substantive discussions, most are filled with self-promotion and spam.

They are also changing the privacy, allowing non-members to see the content in public groups and allowing Google to index the public groups. (I’m not sure there is much content to index.)

The redesign is scheduled to be deployed on June 2.

Weekend Book Review: Money for Nothing

The subtitle of Money for Nothing lets you know what’s coming: How the Failure of Corporate Boards Is Ruining American Business and Costing Us Trillions. If you’ve had your pitchfork and torch at the ready for a march on corporate malfeasance, then this is the book for you.

John Gillespie and David Zweig spend the first half of the book bashing on the easy targets: Countrywide, Lehman Brothers, Tyco, Fannie Mae, GM, Chesapeake, and AIG.

The role of the board of directors

The board of directors of a corporation is supposed to oversee senior management, approve key strategic decisions and nominate directors for appointment by shareholders. That part is the legal framework.

Strong governance would have the board members contribute their business knowledge and long-term vision for the company to help guide the executives in running the business operations. They should be a check on executive power and act as a watchdog for long-term shareholder value.

For some companies, the board is merely a tool to lend legitimacy to the fiction that shareholders’ interests are being taken into consideration.

Testing board governance

How do you measure or identify poor corporate boards? One measuring stick is executive compensation. It does make sense that an over-compensated CEOs should be an indication that the board is not willing to stand up to the CEO. That may also lead you to conclude they are not paying attention to succession, ethics or risk management. The authors don’t reference any studies or empirical evidence that their conclusion is correction.

Board failure

Clearly shareholders should want a board of directors that contribute to the leadership of the corporation. They should not want simple rubber stamps for approving the decisions made by the CEOs.

A director who speaks out risks being ignored or being thrown off the board in the next election cycle. After all, shareholders have little or no input on who gets nominated to be a director.

Chesapeake

One example in the book is Chesapeake Energy Corp. They cite the work of Michelle Leder of Footnoted in digging through the company’s filings to discover excessive executive compensation and naming the worst footnote of 2009. In addition to his excessive salary as the company was under-performing, the company purchased CEO Aubrey McClendon’s antique map collection for $12.1 million (that was $8 million over its valuation).

Separating CEO and Chairman

Is it the structure of the board? One change that makes a lot of sense is splitting the Chairman and CEO positions. The authors cited a study by Lucian Bebchuk and Jesse Friedin in Pay without Performance. Bebchuk and Friedin found that CEO pay is 20% to 40% higher if the CEO is also Chairman of the Board.

Let the CEO run the company with the board of directors as the CEO’s boss. Let the chairman run the board of directors. They are different tasks with different needs.

How does excessive CEO compensation happen?

Zweig and Gillespie mention one reason when they discuss a conversation they have with Dennis Kozlowski, the imprisoned former CEO of Tyco. Kozlowski said he thought his compensation was justified in relation to what hedge fund managers were getting for creating considerably less value.

The second reason is one I like to call the Lake Wobegon Effect. It’s hard for a board to say that a CEO is below average without firing him. If you set the pay and compensation to be below average, then you are making a negative statement. As a result most CEO pay gets set at the average or above average. That has the effect of moving the average upward when next year’s round of compensation consultants look at average salaries.

An Economic Policy Institute study showed that CEO compensation has risen to become about 10% of all corporate profits. That’s nearly double the level it was in the min-1990s. (See The State of Working America)

How much does the board affect performance?

It’s easy to attack the failures of Lehman, Bear Stearns and Merrill Lynch. If you are going to blame some of the failure on their boards, shouldn’t there be some credit given to the boards of Goldman Sachs and Morgan Stanley? Goldman and Morgan survived and the others didn’t. Perhaps the causation is not as strong at the authors think.

The authors criticize the board of Exxon-Mobil. I agree with the criticism. On the other hand, the company has experience remarkable success as one of the world’s biggest companies.

(I do own stock in Exxon and Goldman.)

The gatekeepers

The authors don’t just stop at the board. They have plenty of harsh words for the auditors, lawyers, compensation consultants and other professionals hired by boards. These gatekeepers have a “vested interest in preventing the boat from rocking.”

They have a rant worthy of Francine McKenna on auditors:

“Accountants and auditors in America seem to have spent the last century dodging five major terrors: regulation, financial liability, legal liability, the imposition of uniform accounting practices, and offending current and future corporate customers by making audit rules and processes more rigorous and accurate.”

What to do?

For retail investors I think the answer is very easy. Sell the stock and buy stock in a different company. Its a bigger issue for institutional investors. Their ownership interest may be so large that selling their position would bring down the share price even further resulting in an even bigger loss.

After 200+ pages of pointing out board failures the authors turn to a chapter full of solutions and ways to fix boards. If you are a student of corporate governance you’re not going to find anything particularly new or innovative in the author’s proposed solutions.

The real question is how to get them implemented. As the authors tell throughout the book, it’s not in the short-term interests of the board or senior executives to implement these changes. It will be up to the exchanges, regulators and big investors.

Thanks

I want to thank the book publisher for providing a review copy of the book and Jerod Morris of Corporate Compliance Insights for directing it my way.

Gold To Go

Don’t settle for getting just cash from your ATM. Insist on gold.

The Emirates Palace hotel in Abu Dhabi has installed an ATM that spits out gold instead of the local currency.

The ATM monitors the hourly price of gold and offers small gold bars. In addition to 1 g, 5 g and 10 g bars of gold, the machine also dispenses gold coins bearing designs such as the Krugerrand, Maple Leaf and Kangaroo, which are sold in gift boxes.

The ATM first debuted last year, with press previews and test runs in Germany. The Emirates Palace ATM is the first permanent installation.

The machine only takes cash. No credit cards. If you fear a currency devaluation. First you have to go a conventional ATM, get a big wad of cash and then come back to the Gold-to-Go ATM.

I doubt that I’ll see one of these ATMs on the streets of Boston anytime soon.