PMI: Is This A Case Study In Control Fraud? [View article]
wef451 - - -
You wrote:
<<< Executive pay was higher than base salary in 2010, due to achieving such key milestones that were favorable for the long-term interests of policyholders, creditors and shareholders.>>>
PMI: Is This A Case Study In Control Fraud? [View article]
wef451 - - -
I see that a comment link I intended to insert in a previous comment was omitted: http://seekingalpha.co...
As mentioned in that comment I am hoping that you or someone else with specific information may be able to shed some light on the 50,000 shares of stock purchased earlier this year.
If you have any other specific information about PMI it is welcome in this discussion.
PMI: Is This A Case Study In Control Fraud? [View article]
wef451 - - -
Please read the comment stream. http://seekingalpha.co... (Oct. 25 4:13 pm) I clearly stated that 2009-2011 option grant possibilities were excluded from the price history:
<<So that leaves only the question of the option strike price, which is the most serious question raised in the discussion of options. Unless Mr. Smith supplied cash at the exercise, the grant value for the options was much below (by 75-98%) the market price for the stock over the prior ten years (excluding 2009-2011, much of which should have been not eligible for vesting under the customary terms for option incentive plans).>>
My experience in dealing with executive stock option plans is that it is customary for options to be locked up for four years after the date of grant before exercise is allowed. I have not researched the tax law restrictions, but I have always assumed that the four years was a tax code requirement. If the restriction can apply for as short a time as two years then the $0.63 could be an option exercise price.
There are two classes of employee stock options: qualified and non-qualified with different tax treatments. Non-qualified options may not have the four year restriction and Mr. Smith could have had non-qualified options, which, in my experience, is an unusual occurrence. However, my experience is limited to a handful of clients so a reader may be able to offer a more complete analysis.
If the option issuance dates are in February and March as you report, then the option strike price mystery is removed.
The other possibility has been mentioned by another commenter. The exercises could have been for restricted stock grants with minimal transfer costs.
All analysis is shallow until all the facts are shorted out. This analysis remains shallow. I suggest you read these other comments and add anything else you are able to report on:
PMI: Is This A Case Study In Control Fraud? [View article]
Surfer - - -
You are correct that the GSE's had little to do with the origination of sub-prime, Alt-A, liars loans, etc.
However, Fannie and Freddie did provide a market (as buyers) for MBS (mortgage backed securities ) that contained defective mortgages. This became significant in 2006 when virtually all new MBS were toxic. The banking lobby and their congressional minions were all too eager to encourage this. GSEs were guilty of helping drive the last air into the housing bubble.
Even more important is the hundreds of billions of toxic assets guided onto the GSE books in the post 2008 bailout efforts for the TBTF banks. The toxic waste in the GSEs continued to grow as transfers occurred from the banks in a continuing "shadow bailout."
Now that the banks are presumed to be stronger (!!??!?!) there has been discussion of whether the GSEs might recover as much as $100 billion through putbacks of bad MBS to the banks. I wrote about this a year ago: http://bit.ly/slnYCt
John Talbott has called the $1+ trillion MBS transferred to the Fed balance sheet (again a backdoor bailout) as a "Trillion Dollar Scandal" http://bit.ly/v8rWq0
Michael Hudson ahs written about the socialization of MBS losses as part of a larger picture that he calls the "$13 Trillion Fraud" http://bit.ly/uWjZYV
There were intitially some poor management decisions regarding the purchase of MBS that led to the nationalization of the GSEs in 2008. Origination of bad mortgages were not a problem in which they had a role. They did support the perpetuation of fraudulent MBS processes by buying the junk 2006 and 2007. They have, as government owned agencies, participated in a continuing bank bailout process from 2008 on.
The history of this period will be studied for many decades. The convoluted nature of the history is still being sorted out and we won't see more complete descriptions for several years. As one of our contributors says, where are the forensic accountants? He is working on an article to discuss this need and outline why, how and where this field could be employed.
PMI: Is This A Case Study In Control Fraud? [View article]
Surfer - - -
Your idea that the exercise may have been for restricted stock grants is a likely possibility. The numbers for an option exercise just don't work, as I discussed in the article.
The link you provided is for stock grants to non-employee directors so it would not apply to Mr. Smith. However, restricted stock grants with a nominal "exercise" (transfer) price could be the source of the transaction record. If Smith was able to delay action on the stock until the restricted period had expired then he could have made the cash neutral transactions described as a hypothetical in the article. He could also have used stock he held from previous purchases and for which no restrictions still existed for the cost off-set. However, from the data I have reviewed there is no indication so far that he had sufficient shares in his possession to do that. The deeper SEC record of transaction by Mr. Smith will have to be examined to determine the actual number of shares Mr. Smith carried into 2010.
The idea that the 50,000 shares purchased was a ploy to cover his real objective of surviving another year at $2.88 million salary is most seductive. However, the purchase is listed as "indirect". As tomotm points out below, indirect means he did not purchase directly, but through a trust, LLC or some other entity. So maybe he didn't spend $88,500 of his own money to "cover his tracks" but perhaps got the funds from money he actually could never use for personal expenditure or investment.
In other words, the following questions can be postulated:
Did Mr. Smith use $88,500 of money that he could not use for personal purposes to buy 50,000 shares of PMI stock which would show in SEC disclosure documents as an indirect purchase attributed to him?
If so, did he divert money over which he had some kind of fiduciary responsibility to a speculative (or worse hopeless) venture in an attempt to gain some personal advantage?
It would be great if wef451 or some other person with detailed knowledge of inside information in this matter would come forward and clarify this situation.
Lack of transparency in the records reviewed so far allow all sorts of damaging hypotheticals to be constructed.
wef451 wrote:
<<<<I have followed this company for years and have nothing but the highest respect for management. I believe they will be successful in their effort to continue writing new business in a new subsidiary, which will be beneficial for all stakeholders.>>>
Much more information is needed to back that up and remove the very dark cloud which currently hovers over this enterprise (former enterprise?)
PMI: Is This A Case Study In Control Fraud? [View article]
OG - - -
Thanks for the defense. However, wef451 does have one point I took to heart. I should not have used so many links for the quotes. One would have been sufficient. Also, a disclosure statement at the end of the article about my relationship with GEI would also have been in order.
This was the first comment wef451 has made on SA and he has no profile information and is not following anyone. It could be that he simply followed the link to this article from Yahoo Finance where it was prominently listed and may never come back. We'll see.
I agree a little bit of background detail would have given his argument far more credibility.
PMI: Is This A Case Study In Control Fraud? [View article]
tomtom - - -
Thanks. That explains to reason the 50,000 shares May 10 do not show up in Mr. Smith's total in the May 20 (Yahoo date) or May 23 filing in the SEC document cited by Surfer.
So all the transactions that I attributed to be with the company were actually made in the open market. I am much more comfortable with that - it is the way all option exercises I have been associated with have been handled.
So that leaves only the question of the option strike price, which is the most serious question raised in the discussion of options. Unless Mr. Smith supplied cash at the exercise, the grant value for the options was much below (by 75-98%) the market price for the stock over the prior ten years (excluding 2009-2011, much of which should have been not eligible for vesting under the customary terms for option incentive plans).
PMI: Is This A Case Study In Control Fraud? [View article]
Surfer - - -
That particular SEC filing shows part of the full list of insider trades that have been compiled by Yahoo. Other filings reports are needed to compile the entire list I got from Yahoo.
The report does show new option awards made in 2010 and 2011, but that was not part of my analysis.
The same guesses and estimates are necessary wtith the SEC data. Those reports do not give the details of exercize prices and the reasons and conditions for direct stock sales.
So, yes I could have cross checked the Yahoo data against SEC filings to assure the Yahoo table was accurate. I have not done that. So if Yahoo has made an error I would have been able to determined that.
But using the SEC filing you referenced (and others like it) I would not have been able to eliminate any "guess work." My discussion and analysis would have been the same - unless, of course, there are errors in the Yahoo data.
PMI: Is This A Case Study In Control Fraud? [View article]
misuno88 - - -
Trading of PMI was halted Friday shortly before 3 pm with the last trade at $0.31. Shortly thereafter the action of the Arizona state insurance department was announced. The stock did not trade Monday and is likely never to trade again.
The company announced today (Monday) it had hired an attorney to study reorganization action, with the objective of of obtaining some benefit for equity holders but that is not likely to save any value for stock shareholders (my opinion). Bond holders may get some partial settlement of principal but it is possible that they, too, will get nothing (again my opinion).
So, if you hold PMI stock you will probably have nothing left but a capital gain write-off of 100% of basis.
Banks are Still at the Derivatives Casino [View article]
gakushi - - -
The source of the number is Agora Financial whose graphic I used to start my discussion. They attribute the data to U.S. Office of the Comptroller of the Currency. It can be found in Table 1, near the end of www.occ.treas.gov/ftp/....
The Office of the Comptroller of the Currency attributes their data to corporate 10Qs. At this point I don't know how to reconcile the differences between to BAC 10Q yahoo.brand.edgar-onli... and the government data.
TARP: What Happened and Does Anyone Care? Part 2 [View article]
Elliott - - -
Another good piece of research. I have one summary comment to add.
You show a total of $933 billion in debt coming due but only $768 billion in liabilities on the balance sheet. Is that due to assumed debt rollovers? If I assume that $768 billion is the net total debt, the $15 billion in income (after debt service - interest), it would more than 50 years to retire the debt from income.
If I take your lower number for income ($10 billion), it takes over 75 years to retire the debt.
What is the average interest on debt? At 5% (I doubt anyone would lend to AIG at that rate - unless it's Uncle Sam), the annual debt service cost is nearly $4 billion. At 10%, it's $8 billion. In a future high interest rate environment, debt service cost could double. Much of the earnings that we have assumed to be available to retire debt could disappear.
It is easy to see a 100+ year scenario to retire AIG debt. Even at a 50 year workout, the company is not viable. Any changes are likely to impact the workout negatively. AIG is simply a dismemberment project and once all viable parts have been sold, the government investment will likely be recovered at cents on the dollar. Private investments will be recovered at similar or lower ratios.
These projections become null and void if there is high inflation. In that case the debt dollars become worth much less and both income and asset sales inflate. The sale value of assets would be the key to workout because debt could be retired cheaply with devalued dollars as asset sale proceeds would escalate on a nominal scale. The higher interest rates needed for rollover would be avoided because the debt would be retired, not rolled over.
Banks are Still at the Derivatives Casino [View article]
Septhaka - - -
Could you elaborate on one other aspect of your original comment? You wrote:
<95%+ of the derivatives market consists of interest rate and foreign currency derivatives.>
According to the latest BIS report www.bis.org/publ/otc_h... the distribution of derivatives were as follows: Interest Rate: $450 trillion (73%) "Other": $73 trillion (12%) Foreign Exchange: $49 trillion (8%) CDS: $33 trillion (5%) Equity: $7 trillion (1%) Commodity: $3 trillion (<1%)
Was your 95% just an off-the-cuff estimate or did you have some other data in mind?
PMI: Is This A Case Study In Control Fraud? [View article]
You wrote:
<<< Executive pay was higher than base salary in 2010, due to achieving such key milestones that were favorable for the long-term interests of policyholders, creditors and shareholders.>>>
I rest my case.
PMI: Is This A Case Study In Control Fraud? [View article]
I see that a comment link I intended to insert in a previous comment was omitted: http://seekingalpha.co...
As mentioned in that comment I am hoping that you or someone else with specific information may be able to shed some light on the 50,000 shares of stock purchased earlier this year.
If you have any other specific information about PMI it is welcome in this discussion.
PMI: Is This A Case Study In Control Fraud? [View article]
Please read the comment stream. http://seekingalpha.co... (Oct. 25 4:13 pm) I clearly stated that 2009-2011 option grant possibilities were excluded from the price history:
<<So that leaves only the question of the option strike price, which is the most serious question raised in the discussion of options. Unless Mr. Smith supplied cash at the exercise, the grant value for the options was much below (by 75-98%) the market price for the stock over the prior ten years (excluding 2009-2011, much of which should have been not eligible for vesting under the customary terms for option incentive plans).>>
My experience in dealing with executive stock option plans is that it is customary for options to be locked up for four years after the date of grant before exercise is allowed. I have not researched the tax law restrictions, but I have always assumed that the four years was a tax code requirement. If the restriction can apply for as short a time as two years then the $0.63 could be an option exercise price.
There are two classes of employee stock options: qualified and non-qualified with different tax treatments. Non-qualified options may not have the four year restriction and Mr. Smith could have had non-qualified options, which, in my experience, is an unusual occurrence. However, my experience is limited to a handful of clients so a reader may be able to offer a more complete analysis.
PMI: Is This A Case Study In Control Fraud? [View article]
You are correct. See http://yhoo.it/tWko2p;range=5y
PMI closed below $0.63 on the following dates:
2/25 - 3/18; 3/30 and 3/31; and 4/20.
If the option issuance dates are in February and March as you report, then the option strike price mystery is removed.
The other possibility has been mentioned by another commenter. The exercises could have been for restricted stock grants with minimal transfer costs.
All analysis is shallow until all the facts are shorted out. This analysis remains shallow. I suggest you read these other comments and add anything else you are able to report on:
PMI: Is This A Case Study In Control Fraud? [View article]
You are correct that the GSE's had little to do with the origination of sub-prime, Alt-A, liars loans, etc.
However, Fannie and Freddie did provide a market (as buyers) for MBS (mortgage backed securities ) that contained defective mortgages. This became significant in 2006 when virtually all new MBS were toxic. The banking lobby and their congressional minions were all too eager to encourage this. GSEs were guilty of helping drive the last air into the housing bubble.
Even more important is the hundreds of billions of toxic assets guided onto the GSE books in the post 2008 bailout efforts for the TBTF banks. The toxic waste in the GSEs continued to grow as transfers occurred from the banks in a continuing "shadow bailout."
Now that the banks are presumed to be stronger (!!??!?!) there has been discussion of whether the GSEs might recover as much as $100 billion through putbacks of bad MBS to the banks. I wrote about this a year ago: http://bit.ly/slnYCt
John Talbott has called the $1+ trillion MBS transferred to the Fed balance sheet (again a backdoor bailout) as a "Trillion Dollar Scandal" http://bit.ly/v8rWq0
Michael Hudson ahs written about the socialization of MBS losses as part of a larger picture that he calls the "$13 Trillion Fraud" http://bit.ly/uWjZYV
There were intitially some poor management decisions regarding the purchase of MBS that led to the nationalization of the GSEs in 2008. Origination of bad mortgages were not a problem in which they had a role. They did support the perpetuation of fraudulent MBS processes by buying the junk 2006 and 2007. They have, as government owned agencies, participated in a continuing bank bailout process from 2008 on.
The history of this period will be studied for many decades. The convoluted nature of the history is still being sorted out and we won't see more complete descriptions for several years. As one of our contributors says, where are the forensic accountants? He is working on an article to discuss this need and outline why, how and where this field could be employed.
PMI: Is This A Case Study In Control Fraud? [View article]
Your idea that the exercise may have been for restricted stock grants is a likely possibility. The numbers for an option exercise just don't work, as I discussed in the article.
The link you provided is for stock grants to non-employee directors so it would not apply to Mr. Smith. However, restricted stock grants with a nominal "exercise" (transfer) price could be the source of the transaction record. If Smith was able to delay action on the stock until the restricted period had expired then he could have made the cash neutral transactions described as a hypothetical in the article. He could also have used stock he held from previous purchases and for which no restrictions still existed for the cost off-set. However, from the data I have reviewed there is no indication so far that he had sufficient shares in his possession to do that. The deeper SEC record of transaction by Mr. Smith will have to be examined to determine the actual number of shares Mr. Smith carried into 2010.
The idea that the 50,000 shares purchased was a ploy to cover his real objective of surviving another year at $2.88 million salary is most seductive. However, the purchase is listed as "indirect". As tomotm points out below, indirect means he did not purchase directly, but through a trust, LLC or some other entity. So maybe he didn't spend $88,500 of his own money to "cover his tracks" but perhaps got the funds from money he actually could never use for personal expenditure or investment.
In other words, the following questions can be postulated:
Did Mr. Smith use $88,500 of money that he could not use for personal purposes to buy 50,000 shares of PMI stock which would show in SEC disclosure documents as an indirect purchase attributed to him?
If so, did he divert money over which he had some kind of fiduciary responsibility to a speculative (or worse hopeless) venture in an attempt to gain some personal advantage?
It would be great if wef451 or some other person with detailed knowledge of inside information in this matter would come forward and clarify this situation.
Lack of transparency in the records reviewed so far allow all sorts of damaging hypotheticals to be constructed.
wef451 wrote:
<<<<I have followed this company for years and have nothing but the highest respect for management. I believe they will be successful in their effort to continue writing new business in a new subsidiary, which will be beneficial for all stakeholders.>>>
Much more information is needed to back that up and remove the very dark cloud which currently hovers over this enterprise (former enterprise?)
PMI: Is This A Case Study In Control Fraud? [View article]
Thanks for the defense. However, wef451 does have one point I took to heart. I should not have used so many links for the quotes. One would have been sufficient. Also, a disclosure statement at the end of the article about my relationship with GEI would also have been in order.
This was the first comment wef451 has made on SA and he has no profile information and is not following anyone. It could be that he simply followed the link to this article from Yahoo Finance where it was prominently listed and may never come back. We'll see.
I agree a little bit of background detail would have given his argument far more credibility.
Thanks again for chiming in.
PMI: Is This A Case Study In Control Fraud? [View article]
That though definitely occurred to me.
PMI: Is This A Case Study In Control Fraud? [View article]
Thanks. That explains to reason the 50,000 shares May 10 do not show up in Mr. Smith's total in the May 20 (Yahoo date) or May 23 filing in the SEC document cited by Surfer.
So all the transactions that I attributed to be with the company were actually made in the open market. I am much more comfortable with that - it is the way all option exercises I have been associated with have been handled.
So that leaves only the question of the option strike price, which is the most serious question raised in the discussion of options. Unless Mr. Smith supplied cash at the exercise, the grant value for the options was much below (by 75-98%) the market price for the stock over the prior ten years (excluding 2009-2011, much of which should have been not eligible for vesting under the customary terms for option incentive plans).
PMI: Is This A Case Study In Control Fraud? [View article]
That particular SEC filing shows part of the full list of insider trades that have been compiled by Yahoo. Other filings reports are needed to compile the entire list I got from Yahoo.
The report does show new option awards made in 2010 and 2011, but that was not part of my analysis.
The same guesses and estimates are necessary wtith the SEC data. Those reports do not give the details of exercize prices and the reasons and conditions for direct stock sales.
So, yes I could have cross checked the Yahoo data against SEC filings to assure the Yahoo table was accurate. I have not done that. So if Yahoo has made an error I would have been able to determined that.
But using the SEC filing you referenced (and others like it) I would not have been able to eliminate any "guess work." My discussion and analysis would have been the same - unless, of course, there are errors in the Yahoo data.
PMI: Is This A Case Study In Control Fraud? [View article]
Trading of PMI was halted Friday shortly before 3 pm with the last trade at $0.31. Shortly thereafter the action of the Arizona state insurance department was announced. The stock did not trade Monday and is likely never to trade again.
The company announced today (Monday) it had hired an attorney to study reorganization action, with the objective of of obtaining some benefit for equity holders but that is not likely to save any value for stock shareholders (my opinion). Bond holders may get some partial settlement of principal but it is possible that they, too, will get nothing (again my opinion).
So, if you hold PMI stock you will probably have nothing left but a capital gain write-off of 100% of basis.
Banks are Still at the Derivatives Casino [View article]
The source of the number is Agora Financial whose graphic I used to start my discussion. They attribute the data to U.S. Office of the Comptroller of the Currency. It can be found in Table 1, near the end of www.occ.treas.gov/ftp/....
The Office of the Comptroller of the Currency attributes their data to corporate 10Qs. At this point I don't know how to reconcile the differences between to BAC 10Q yahoo.brand.edgar-onli... and the government data.
Any thoughts?
TARP: What Happened and Does Anyone Care? Part 2 [View article]
Another good piece of research. I have one summary comment to add.
You show a total of $933 billion in debt coming due but only $768 billion in liabilities on the balance sheet. Is that due to assumed debt rollovers? If I assume that $768 billion is the net total debt, the $15 billion in income (after debt service - interest), it would more than 50 years to retire the debt from income.
If I take your lower number for income ($10 billion), it takes over 75 years to retire the debt.
What is the average interest on debt? At 5% (I doubt anyone would lend to AIG at that rate - unless it's Uncle Sam), the annual debt service cost is nearly $4 billion. At 10%, it's $8 billion. In a future high interest rate environment, debt service cost could double. Much of the earnings that we have assumed to be available to retire debt could disappear.
It is easy to see a 100+ year scenario to retire AIG debt. Even at a 50 year workout, the company is not viable. Any changes are likely to impact the workout negatively. AIG is simply a dismemberment project and once all viable parts have been sold, the government investment will likely be recovered at cents on the dollar. Private investments will be recovered at similar or lower ratios.
These projections become null and void if there is high inflation. In that case the debt dollars become worth much less and both income and asset sales inflate. The sale value of assets would be the key to workout because debt could be retired cheaply with devalued dollars as asset sale proceeds would escalate on a nominal scale. The higher interest rates needed for rollover would be avoided because the debt would be retired, not rolled over.
Banks are Still at the Derivatives Casino [View article]
Great discussion on speculative demand. I hope others will find it here at the end of an aging comment thread.
Thanks for your input.
Banks are Still at the Derivatives Casino [View article]
Could you elaborate on one other aspect of your original comment? You wrote:
<95%+ of the derivatives market consists of interest rate and foreign currency derivatives.>
According to the latest BIS report www.bis.org/publ/otc_h... the distribution of derivatives were as follows:
Interest Rate: $450 trillion (73%)
"Other": $73 trillion (12%)
Foreign Exchange: $49 trillion (8%)
CDS: $33 trillion (5%)
Equity: $7 trillion (1%)
Commodity: $3 trillion (<1%)
Was your 95% just an off-the-cuff estimate or did you have some other data in mind?