2 ms·

I don't think it's a bad thing. I think it's an important thing, and I think it will be effective for preventing bad behaviour. If it seems otherwise, I'm sorry

I don't think it's a bad thing. I think it's an important thing, and I think it will be effective for preventing bad behaviour. If it seems otherwise, I'm sorry for being unclear. But.. I am fuming at what a case like this exposes. We have no real way of holding corporations accountable as corporations. If an individual "sole trader" (or even just a small company) did this, they would almost certainly pay with the loss of their entire business. In this case, shareholders are barely affected. I'm angry (hence the ranting) about this, not at the prosecutor. I'm also don't have a solution.

JumpCrisscross 8y ago
> they would almost certainly pay with the loss of their entire business As the Takata example shows (and Enron and Arthur Andersen), a big enough fine will wipe out a business.
- ckastner 8y ago
  At the risk of sounding too pedantic: wasn't it the reputational damage that did Enron and Arther Andersen in, eventually? I'm hairsplitting this because in certain industries, reputational risk is a much stronger deterrent that legal consequences (severe as they may be).
  - vlozko 8y ago
    Enron's and Arther Anderson's accounting fraud did them in. Reputation, while certainly diminished, did not play a role in their bankruptcy. Absolutely worth a watch if you have a chance: https://www.imdb.com/title/tt1016268/ https://www.imdb.com/title/tt1016268/
    - ckastner 8y ago
      Fraud itself, by definition, is a gain, so that cannot be what did them in. It's the consequences of getting caught that do you in. The consequences can be fines, the consequences may be legal liabilities, etc. But in some industries, the consequence of losing your reputation effectively means losing your business -- eventually resulting in bankruptcy. Quoting the Wikipedia page on Arthur Andersen [1]: > Since the ruling vacated Andersen's felony conviction, it theoretically left Andersen free to resume operations. The damage to the Andersen name was so severe, however, that it has not returned as a viable business even on a limited scale. Perhaps a better example would be Mossack Fonseca [2], the main firm behind the Panama Papers, who shut themselves down recently because what client wants to be associated with that hot mess? Your clients running away will kill you a lot faster than any authority (short of industries where an authority can revoke your license to do business, eg: banking). [1] https://en.wikipedia.org/wiki/Arthur_Andersen#Demise https://en.wikipedia.org/wiki/Arthur_Andersen#Demise [2] https://en.wikipedia.org/wiki/Mossack_Fonseca https://en.wikipedia.org/wiki/Mossack_Fonseca
    - cameldrv 8y ago
      My understanding is that in Andersen's case, had they been convicted of accounting fraud, they either legally or practically couldn't be auditors for a public company. Since Andersen was really just a bunch of people, it made more sense for those people to move to companies without an accounting fraud conviction, so they could do auditing for public companies.
- jburgess777 8y ago
  Take Cambridge Analytica as a more recent example. The company declares bankruptcy after the scandal involving the misuse of Facebook users data but many of the company directors have new jobs at Emerdata, owned by the same parent company. https://www.bbc.co.uk/news/technology-43989046 https://www.bbc.co.uk/news/technology-43989046
toomuchtodo 8y ago
Nationalize the organization. This allows you the flexibility to keep employees employed, fix the culture, extract penalties from the org, clawback comp from responsible individuals and remove them from their positions, and haircut shareholders. Similar to what the US gov did with GM (streamlined bankruptcy/administration). This requires political will, of course.
- deleted 8y ago
  [deleted]
michaelt 8y ago
In this case, shareholders are barely affected. Although in principle shareholders are the owners of the company, in practice it's extremely hard for them to exert any control over it. Their power is spread too thinly for any of them to do much, they have no way of communicating, and the bars for things like minority shareholder lawsuits are almost unreachable. Not saying shareholders shouldn't take a haircut - by all means let them! - just that you're going to need to punish execs too if you want to deter this type of behaviour.
- dalbasal 8y ago
  I agree, and I realize from comments this wasn't clear (hard to be precise in a rant). Whatever the abstract point, criminal liability for executives is effective. It's also (imo) just. This is criminal fraud. I don't know what shareholder accountability would do. It may just further incentivize liability dodging by altering the dept/equity ratios. It just doesn't seem right to me that shareholders continue enjoying the fruits of this crime, with a fine amounting to no more than a daily fluctuation in shareprice. This is the point I wanted to be clear on: this is not a minor fraud. Certain engine types have had a massive advantage in European markets. These happened to be engines manufactured and used by VW. These engines and the tax regime around them made certain, very popular models viable. This was all based on fraud. Adding insult to injury, this happens to be a tax regime the vw both authored and defrauded. 1bn/70bn was the cost to shareholders, relative to market cap. VW Has a high loan to equity ratio, so this understates how insignificant the fine was, relative to the financial proceeds from the crime.

JumpCrisscross 8y ago

> they would almost certainly pay with the loss of their entire business As the Takata example shows (and Enron and Arthur Andersen), a big enough fine will wipe out a business.

ckastner 8y ago
At the risk of sounding too pedantic: wasn't it the reputational damage that did Enron and Arther Andersen in, eventually? I'm hairsplitting this because in certain industries, reputational risk is a much stronger deterrent that legal consequences (severe as they may be).
- vlozko 8y ago
  Enron's and Arther Anderson's accounting fraud did them in. Reputation, while certainly diminished, did not play a role in their bankruptcy. Absolutely worth a watch if you have a chance: https://www.imdb.com/title/tt1016268/ https://www.imdb.com/title/tt1016268/
  - ckastner 8y ago
    Fraud itself, by definition, is a gain, so that cannot be what did them in. It's the consequences of getting caught that do you in. The consequences can be fines, the consequences may be legal liabilities, etc. But in some industries, the consequence of losing your reputation effectively means losing your business -- eventually resulting in bankruptcy. Quoting the Wikipedia page on Arthur Andersen [1]: > Since the ruling vacated Andersen's felony conviction, it theoretically left Andersen free to resume operations. The damage to the Andersen name was so severe, however, that it has not returned as a viable business even on a limited scale. Perhaps a better example would be Mossack Fonseca [2], the main firm behind the Panama Papers, who shut themselves down recently because what client wants to be associated with that hot mess? Your clients running away will kill you a lot faster than any authority (short of industries where an authority can revoke your license to do business, eg: banking). [1] https://en.wikipedia.org/wiki/Arthur_Andersen#Demise https://en.wikipedia.org/wiki/Arthur_Andersen#Demise [2] https://en.wikipedia.org/wiki/Mossack_Fonseca https://en.wikipedia.org/wiki/Mossack_Fonseca
  - cameldrv 8y ago
    My understanding is that in Andersen's case, had they been convicted of accounting fraud, they either legally or practically couldn't be auditors for a public company. Since Andersen was really just a bunch of people, it made more sense for those people to move to companies without an accounting fraud conviction, so they could do auditing for public companies.
jburgess777 8y ago
Take Cambridge Analytica as a more recent example. The company declares bankruptcy after the scandal involving the misuse of Facebook users data but many of the company directors have new jobs at Emerdata, owned by the same parent company. https://www.bbc.co.uk/news/technology-43989046 https://www.bbc.co.uk/news/technology-43989046

toomuchtodo 8y ago

Nationalize the organization. This allows you the flexibility to keep employees employed, fix the culture, extract penalties from the org, clawback comp from responsible individuals and remove them from their positions, and haircut shareholders. Similar to what the US gov did with GM (streamlined bankruptcy/administration). This requires political will, of course.

deleted 8y ago
[deleted]

michaelt 8y ago

In this case, shareholders are barely affected. Although in principle shareholders are the owners of the company, in practice it's extremely hard for them to exert any control over it. Their power is spread too thinly for any of them to do much, they have no way of communicating, and the bars for things like minority shareholder lawsuits are almost unreachable. Not saying shareholders shouldn't take a haircut - by all means let them! - just that you're going to need to punish execs too if you want to deter this type of behaviour.

dalbasal 8y ago
I agree, and I realize from comments this wasn't clear (hard to be precise in a rant). Whatever the abstract point, criminal liability for executives is effective. It's also (imo) just. This is criminal fraud. I don't know what shareholder accountability would do. It may just further incentivize liability dodging by altering the dept/equity ratios. It just doesn't seem right to me that shareholders continue enjoying the fruits of this crime, with a fine amounting to no more than a daily fluctuation in shareprice. This is the point I wanted to be clear on: this is not a minor fraud. Certain engine types have had a massive advantage in European markets. These happened to be engines manufactured and used by VW. These engines and the tax regime around them made certain, very popular models viable. This was all based on fraud. Adding insult to injury, this happens to be a tax regime the vw both authored and defrauded. 1bn/70bn was the cost to shareholders, relative to market cap. VW Has a high loan to equity ratio, so this understates how insignificant the fine was, relative to the financial proceeds from the crime.