Thursday, January 1, 2015

Crimes and Congress

Grimms’ Fairy Tales
— A collection of Fairy Tales by the brothers Grimm

Recent events cause the citizen to ask whether there are any rules that might prevent members of the criminal class from also being members of a Congressional class. What we have learned, thanks to Michael Grimm, the Congressman from New York’s 11th Congressional District, is that being a congressman and a convicted felon are not mutually exclusive. Being both ultimately ended badly for Mr. Grimm but not because of any congressional rule or protocol.

In April 2014, Congressman Grimm was confronted with a 20-count federal indictment alleging, among other things, that he was concealing income he received from a health food restaurant he once owned. Among other things, the store was a vehicle that enabled him to engage in tax fraud. On May 28, 2014, discussing the criminal charges with a reporter from Politico, Congressman Grimm expressed confidence he would be exonerated. On November 4 Congressman Grimm was elected to a third term in Congress and on December 23 Congressman Grimm pled guilty to a felony federal charge of filing false tax returns for the health food store he owned. Prosecuting attorney, Loretta Lynch, the U.S. Attorney for the Eastern District of New York said the Congressman “chose lies and deception over honest dealings with federal and state authorities as well as his own employees.” Notwithstanding his guilty plea, the good news, as far as the congressman was concerned, was that instead of standing trial in the spring on 20 federal charges he would be in Congress working on important legislation. As he told reporters after he’d entered his guilty plea: “so long as I am able to serve, I will serve.” What he was saying is that being a convicted felon is no bar to serving in the United States House of Representatives. That probably surprises some of my readers. Mr. Grimm is, however, correct.

Paragraph 1 of House Rule XXIII says members of the House “shall behave at all times in a manner that shall reflect creditably on the House.” That reference, of course, does not apply to criminal behavior engaged in by a member of the House before joining that body, and, therefore, pleading guilty to such a crime while a member of Congress should not implicate paragraph 1. It might, however, implicate paragraph 10. That paragraph says a congressman receiving a sentence of 2 or more years’ imprisonment “should [not “must”] refrain from voting on any question . . . unless or until judicial or executive proceedings result in reinstatement of the presumption of the [member’s] innocence . . . . or the Member is reelected to the House after the date of such conviction.” Why the Rule refers to “reinstatement of the presumption of innocence” instead of “exoneration of the charges”, is unclear. Although Rule XXIII does not require a convicted congressman to leave the House, two-thirds of the House could vote to expel Mr. Grimm but that has only happened twice since the civil war.

On December 29,2014, Congressman Grimm announced that he was resigning from Congress saying: “After much thought and prayer, I have made the very difficult decision to step down from Congress. . . .[It] is time for me to start the next chapter of my life.” His reference to “ prayer” almost certainly refers not to Mr. Grimm addressing a deity, but to Majority Leader, John Boehner, addressing Mr. Grimm and urging him to resign from Congress so that Mr. Boehner’s Republican caucus will not include a convicted felon. The “new chapter” to which Mr. Grimm refers is his upcoming time in prison.

The foregoing discussion is of more than passing interest to one of Mr. Grimm’s colleagues, Chaka Fattah. Mr. Fattah, a democrat, has just been elected to an 11th term in the House from West Philadelphia with 88 percent of the vote. He, like Mr. Grimm, is facing an encounter with the federal criminal justice system. The foregoing discussion may be of more than passing interest to him should he be convicted of criminal activity as seems more than a slight possibility. Federal prosecutors have had him in their sights for some time. In August 2014 his former chief of staff pled guilty to several counts of campaign finance fraud. Among improper payments made by the aide were payments to reduce Mr. Fattah’s son’s college debt. On November 7, 2014, another former Fattah aide pled guilty to one count of conspiring to commit honest services wire fraud, a charge someone smarter than this writer can explain. The kinds of questionable activities in which Mr. Fattah and his aides have been engaged are discussed at some length in The Philadelphia Tribune. The foregoing discussion of what consequences of a conviction meant for Mr. Grimm are certainly of no interest to Mr. Fattah-yet. He might want to keep it in mind for future reference, however.

Discuss this column

Thursday, December 25, 2014

A Kim Comedy

The world is a comedy to those that think, a tragedy to those that feel.
—Horace Walpole, Letter to the Countess of Upper Osory

It’s too bad that Seth Rogen and Evan Goldberg didn’t create a funny and historically accurate movie about Kim Jong-un. It’s not that they lacked material-it’s that they lacked imagination.

The Interview is a comedy about the fictitious assassination of Kim Jong-un, president of North Korea. Judging from the response, the only criticism associated with the movie was criticism of Sony for withdrawing it from theaters before it premiered, a decision it soon reversed. No one has suggested that getting laughs from showing the assassination of a buffoon, who, nonetheless, is president of a country, might be considered tasteless. A fake execution of Kim would not be needed to make a really funny movie about him. Ordinary events embellished by a bit of artistic license would serve equally well.

A movie about Kim could be introduced by some snippets from the life of another great president, Vladimir Putin. It might, for example, begin with the video showing Mr. Putin dressed in an all-white costume mounted on a motorized deltaplane ready to lead young Siberian cranes on their first annual migration. He dressed in white so the young cranes would think him one of them. A later picture could be included showing Vladimir airborne with the young cranes dutifully following their president. Another scene might be the one in which he emerges from a small submarine following his inspection of the remains of the naval frigate “Oleg” that sank in the 19th century. Linking Kim to Vladimir would establish that Kim is, like Vladimir, a truly great world leader.

Following the introduction we would be taken to Switzerland and Kim’s activities in Swiss schools that he attended for seven years. According to reports he was a mediocre student and by the time he left Switzerland in 2000, had not earned even one General Certificate of Secondary Education. His close school friend, Joao Micaelo, said he and Kim were not “the dimmest kids in the class but neither were we the cleverest. We were always in the second tier.” While in school Kim had a cook, driver, private teacher, and lived in a lavish apartment. Joao said Kim’s favorite music was the Korean national anthem which Joao said he must have heard 1000 times. Kim’s years in school could have provided great opening scenes for a comedy about the hapless youngster.

From school in Switzerland Messrs. Rogen and Goldberg would have moved on to the life of the glorious leader as shown on countless websites. As a starting point they might have gone to The Telegraph that published 17 photos of Kim engaged in day-to-day activities. The 17 photos show Kim at his best and would require little creativity to elicit laughs from the audience. Photo 8, for example, shows Kim laughing heartily, amused by a lubricant that is being extruded from the machine in which it is made. A worker beside him watches solemnly having seen the event hundreds of times and no longer finding it amusing. In photo 9 Kim and soldiers accompanying him are laughing while visiting a breeding station. The foregoing is not meant to suggest that Kim does not have a serious side.

Photo 11 shows him, brow furrowed, carefully inspecting a sock at the Phongyang Hosiery Factory. The caption says that Kim gave ‘precious instructions’ for improving the management and operation of the factory. He may have found a hole in the sock which would explain the furrowed brow. In photo 17 Kim is standing in a small, aged, wooden rowboat waving at the camera. The boat could comfortably accommodate three people plus an oarsman. In the photo, however, there are eleven people standing around Kim and eight men in knee-deep water attempting to push the boat into the bay. Another photo showing Kim’s serious side shows him commanding a Romeo class submarine declared obsolete by the Soviet Union in 1961. That would tie in nicely with the video of Vladimir’s submarine ride

Messrs. Rogen and Goldberg would not, of course, have had to rely exclusively on photos for their comedy. Another scene could have depicted the report of the execution of Kim’s uncle and one-time mentor, Jang Song Thaek. NBC news and countless other news organizations reported that Jang and five aides were killed by being placed in a cage with 120 hunting dogs that had been starved for five days and, according to that report, witnesses said the men were “completely eaten up.” That narrative was later shown to be the product of a satirist’s imagination but it would nonetheless have provided good fodder for the movie. Another sequence that could have been used to good comedic effect would show the chief of the Presidium of the Supreme Assembly of North Korea “conveying Kim’s birthday greetings to Queen Elizabeth on June 14, 2014. And there could be another sequence showing North Korean citizens lined up in registrars’ offices to obtain new birth certificates in order to comply with the terms of a 2011 decree , first made public in 2014, ordering anyone in North Korea bearing the name Kim Jong-un to obtain a new birth certificate with a different name.

The possibilities for a comedy about the life of Kim without including a fictitious assassination are endless. The imaginations of Messrs. and Goldberg were not. A pity that.

Thursday, November 20, 2014

JMorgan Chases Profits

Forgive us our debts, as we forgive our debtors.
The Lord’s Prayer

Here are some of the good things JPMorgan has done in recent years. In 2012 it reduced the compensation of Jamie Dimon, its chairman, president and CEO from $23 million to $11.5 million. That was his punishment for all the bad things the bank acknowledged that it had been doing while under his supervision. The bank acknowledged its sins by paying almost $20 billion in fines and penalties. Included in the $20 billion was $13 billion it agreed to pay in November 2013 that was described in the Wall Street Journal as “the biggest combination of fines and damages extracted by the U.S. government in a civil settlement with any single company.” For a bank the size of JPMorgan to pay $20 billion in fines as penance is a bit like the parishioner entering the confessional and seeking forgiveness from the supervisor of the man on the other side of the partition. It has no effect on his future conduct. Nonetheless, paying the fines was a good thing since each fine was an act of contrition and those acts are always welcomed by those sitting in judgment on bad actors. Here, however, are two bad things JPMorgan has been doing since leaving the federal government’s confessional at the end of 2013.

It increased Mr. Dimon’s compensation package by 74%, raising it to $20 million as a result of which Jamie’s compensation went from $31,506.84 per day to $54,794.52 per day. Since much of that is in restricted stock he cannot run out and spend it all. Here is why that was a bad thing for the bank to have done. It turns out that notwithstanding the $20 billion in penance paid, JPMorgan had discovered yet another way to make money at the expense of its customers. It did this by ignoring part of the bankruptcy laws.

Bankruptcy is designed to give the financially distressed a way of getting a fresh start. Subject to some exceptions, the debts of a person who takes bankruptcy are discharged by the court and the bankrupt person gets a fresh start. The Fair Credit Reporting Act requires credit bureaus to keep accurate information about individual’s credit information. The fact that an individual has taken bankruptcy can appear on a credit report for 10 years after the individual has received a discharge, but the discharged debts cannot be described as unpaid or past due. Creditors may not try to collect on discharged debts. The bankruptcy law notwithstanding, some do. Jamie Dimon’s bank is one of them. Just as it bundled subprime mortgages it had issued and sold them to investors at great profit to itself, according to a report in the New York Times, JPMorgan and other banks have been selling debts discharged in bankruptcy to outside investors. Instead of showing that the debt of an individual to the bank has been discharged and is no longer collectible, the bank continues to described the debt as unpaid and that is how it appears on the borrower’s credit report. If the borrower tries to get credit following a bankruptcy and the credit report does not disclose that the debt cannot be collected, a discharged debtor may be unable to get a new loan or a job or be otherwise adversely affected. The bank, of course, makes money by selling the discharged debt to investors who are willing to take the chance that the debtor will continue to pay on the debt in order to get it removed from the credit report.

Judge Robert D. Drain, a bankruptcy judge sitting in White Plains, New York, has confronted the issue of discharged debts being sold to investors by banks. He observed that the buyers of those debts know that a bank “will refuse to correct the credit report to reflect the obligor’s bankruptcy discharge, which means that the debtor will feel significant added pressure to obtain a ‘clean’ report by paying the debt.” In refusing to throw out a lawsuit that has been filed in which the plaintiffs are seeking class action status for their claims against JPMorgan he observed that “the complaint sets forth a cause of action that Chase is using the inaccuracy of its credit reporting on a systematic basis to further its business of selling debts and its buyer’s collection of such debt.” Of course, until the trial takes place we will not know if the judge’s observation is correct. If it is, he suggested in an earlier case involving the same issue, he would refer the case to the U.S. attorney for criminal prosecution. Jamie wouldn’t care. As in the earlier cases, he will not be criminally charged. His absolution comes by permitting the bank he runs to pay a huge fine to obtain governmental absolution. In a worst-case scenario he might even have to see his salary reduced once again. Another opportunity may just have presented itself.

A U.S. Senate report released November 19, 2014, was highly critical of JPMorgan and other banks for, among other things, exceeding federal limits on commodity holdings. Whether the activities described in the report will result in JPMorgan or any of the other banks paying a fine or Jamie Dimon suffering a salary reduction only time will tell. One thing we know without waiting for events to unfold. JPMorgan stock is a good investment. The bank is always looking for creative ways to make money.