Friday, January 22, 2010

Insider Trading In The Banana Republic

Insider Trading In The Banana Republic.

One of the key challenges that the progressive left must tackle is the issue of corporate regulation, oversight and standards in the south. Cowboy standards in the south have indebted ordinary workers massively, and created a business environment where half a million people are jobless while insolvency rates for businesses are going through the roof. Carrying the can for all of this is regular Sean citizen.

Just recently we saw a good example of how sloppily we allow our businesses environment to be run – to the detriment of honest businesses and their workers and ultimately to the state.

Back in February 2000 the DCC company, a well established Irish company sold of €108 million in shares of Fyffes, the banana company. This proved to be incredibly lucky for DCC because about a month later the Fyffes shares fell by about 25% when Fyffes updated the market on its trading situation. Somebody in heaven must have been looking out for them. Back on this mortal coil though it turns out Jim Flavin, head of DCC, also sat as a non-executive director on the board of Fyffes. (If we had a functioning media that examined who sat on what boards then we would see many interesting things wouldn't we. Just look at the Dublin Docklands Authority and Anglo-Irish).

Anyway as Jim sat on both boards and managed to sell the DCC shares just before things bottomed out there seemed to be questions to answer. The Fyffes shares fell 25% and a fall of 10% is regarded as enough to examine if there was insider training.

Fyffes made a complaint and An Garda, the Stock Exchange and the Director of Public Prosecutions all had a look in. But the wheels of justice move slow and more so when it comes to company wrong doings. The case did not get to the high court until 2007 when the High Court commented "To trade on the use of inside information is recognised for what it is. It is a fraud on the market. The insider who exploits his access to the special knowledge he enjoys for the purposes of the company in his capacity as executive or director of a company commits a crime."

But the High Court found in DCC's favour. On to the Supreme Court then and a different view of things. The Supreme court found that a serious offence had taken place. The law had been broken. DCC paying out €44 million emphasised the fact.

This would appear to be a clear cut case then surely? Well no of course not. In murky waters nothing is clear. A High court inspector was appointed to review things and his report has just been issued.

The Inspector's report confirms the law was broken, but only by accident. The key idea was that DCC had advice to the effect that their actions were within the law. This was good enough for the Inspector. The Irish Times noted that "If – as now appears the case – the paid-for advice of a lawyer replaces the onus on an individual to act in a moral fashion, then corporate law will continue to be broken as long as there is a lawyer prepared to venture an opinion."

Further noting "The Supreme Court has found that a very serious offence has taken place, but the various agencies of the State, ranging from the Garda through the Director of Public Prosecutions, the Financial Regulator and now to the ODCE can't or won't seek any sanction against the company or the individuals involved."

And sure why would they?

But what about this Director of Corporate Enforcement guy - Appleby. Is he a toothless wonder or someone stymied by the rule book from doing good. Who knows? But documents revealed under the Freedom of Information Act to RTÉ in 2007 showed that he had been seeking more resources since 2005 and considered the staffing he had to be "wholly inadequate". He wanted 20 more staff, including more gardaí.

When the matter was raised in the Dáil, the grafter in chief, Bertie Ahern, seemed to become annoyed. "It is not that Mr Appleby's work is not considered important . . . He has 36 , so it seems extraordinary that he could want another 20 . . . One would not receive such an increase in any department . . . He will have to wait his turn." And while he got a few extra positions shortly thereafter did he receive the amount of folks he needed. Considering the free wheeling culture in Corporate Ireland it would appear that no he did not.

How free wheeling this state's corporate world acts is further shown by how DCC sold off the Fyffes shares. The used a foreign based shell company to sell off 31.2 million shares. This little trick allowed them avoid €17 million in taxes on its profits. But the High Court inspector said no Irish laws were broken in the process and Appleby's criticisms were misguided

And what about that Euro 17 million in unclaimed taxes. Is there a job there for revenue?

€17 millions is a significant sum. The average price of school books in the south is €390. 17,000,000 in tax is free books then for 43,589 kids. Roughly the poorest 10% of pupils could have the costs of their books covered for them for a year with that money. Money which poor regulation, weak company law, and ineffectual oversight cost the southern state.

I believe that for progressive parties it is as equally important to focus and innovate policy on Corporate law, Company Law, strengthening regulatory guidelines etc. as it is to focus on issues like council charges etc. They cannot be separated.

As a left Republican party we have to be as well known for promoting responsible financial regulation, effective corporate oversight and a more coherent company law in the south as we are for being a party of community activists defending communities at council level.

In my opinion both Labour and the further left focus too much on one at the expense of the other, albeit from different sides. That's a mistake that means Labour has lost its activist vigour and desire for real change while the further left fatally weakens it ability to create change rather than just provide opposition.

But in order to be effective agents of change a progressive party must excel at both.

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