More from FITE–How Corporate CEO’s Embezzled $$$Millions$$$
How did the CEOs embezzle trillions?
We want to make clear that our information is based on many respected sources in the business world. We say this because the information you will read below will probably stun you as it did us. It helps to know that everything we say can be verified by several sources.
What was their goal?
They wanted to eliminate all barriers to giving themselves huge pay increases every year regardless of how well their companies did.
What was stopping them?
Honest accountants who prevented them from lying on company financial reports.
Honest compensation experts who were setting limits on CEO raises based on what other CEOs were getting.
How did they get them to lie?
The CEOs came from the largest corporations in the country, so they provided a lot of work for compensation experts and accountants. They simply let them know that telling the truth would get them in trouble. Head of the corporate giant Citicorp John Reed, who led the charge, called it “education.”
How did the compensation experts help?
They stopped publishing the CEO’s pay. For example, they refused to cooperate any longer with the Wall Street Journal to produce a yearly compensation survey. Without any standards of pay, CEOs could then give themselves whatever they pleased.
How did the accountants help?
As with all accounting schemes, the details are complex. Basically, they helped by certifying false financial reports that ignored about 2/3rds of CEO income, a trick they called “not expensing stock options.” It was as if the CEO got paid under the table. The money came from the owners, but didn’t show up in the books.
That boosted real or non-existent profits, making the CEOs look like heroes. With profits so high, nobody could object to the huge pay raises that amounted to 500% for the average CEO during the 1990s. The compensation experts helped by not supplying standards of reasonable pay.
That’s the short answer. The accounting details could fill volumes. Even the best experts have trouble understanding parts of it. We provide references to sources that explain more of the details in readable form in the last section.
But didn’t the owners protest?
Absolutely. They were very mad. But they didn’t go to the people who police these matters because the powerful Business Round Table and their friends controlled a large number of high ranking officials responsible for enforcing laws against financial fraud. So they hired lawyers who became very rich by winning many court settlements worth hundreds of millions of dollars.
How did the CEOs react?
The justly high settlements only enraged the CEOs who had hatched the plan. A lot of high tech CEOs joined up. Under cover of accusations that the lawyers were the kind we all love to hate, the CEOs pressured congress to pass the Private Securities Litigation Reform Act of 1995 which effectively legalized the embezzlement. Incredibly, this act made it nearly impossible to use perfectly good evidence of the crime in court. For example, the even the best lawyers (like Lerach) found it almost impossible to win a case against a CEO who deliberately and wildly exaggerated future earnings.
This was public information. Lawyer William Lerach testified in congressional hearings that
“most investors have no idea that Congress eliminated the liability of corporate executives for even deliberate lies. I want to say that again. Even deliberate lies about future corporate performance. This was one of the most astonishing parts of the 1995 act.”
Lerach met with another top rate lawyer, President Clinton, to tell him how the act would harm a lot of people. To Clinton’s credit, he agreed and vetoed the act. But the senate, largely led by Democratic Senator Joseph Lieberman (D-Conn), overrode the veto. It was passed both houses with overwhelming majorities. Both parties enthusiastically participated in this trillion dollar lie. The rental market for politicians in Washington DC was alive and well!
How come all the top corporations didn’t all go broke?
The ones that did collapse carried the game too far. Most were smart enough to know that if they embezzled too much, they might be prosecuted for the collapse they would cause. It was no accident that a lot of the corporations that collapsed were run by young entrepreneurs without enough experience to control their greed.
So at least the CEOs were punished in the end by going bankrupt, right?
No. Many were not – or were given a slap on the wrist. In fact, they were in a sense rewarded because they sold their stock at the high point – just before the collapse they knew would happen. They made sure the stock was the highest possible by lying to the public that the company was in great shape.
How many corporations are involved?
Several studies by reputable economist concluded that, in the words of Dr. Francois Degeorge of the University of Chicago, “we have no doubt that [profits] are being manipulated in many, if not all, companies.” They are referring to 4,500 of our largest corporations that are listed on our stock markets. This was public knowledge. David Wessel of The Wall Street Journal concluded that the average high tech corporation listed in Nasdaq made “not a dime.” Put another way, the CEOs had stolen the profits by taking 2/3rds of their compensation under-the-table so they could claim non-existent profits and further enrich their already astronomical compensation.
Why did they keep doing it? Don’t they already have enough money?
It’s hard for those of us who work for living to imagine there’s no end to greed. Stories about it just don’t seem believable. But lawyer William Lerach knows the embezzlers well because he worked for them for several years. It’s worth quoting in detail from a The Nation article by William Greider that described Lerach’s explanation for why these ultra embezzlers simply could not stop embezzling.
Lerach has a simple explanation. “Penis envy,” he said. “I don’t want to use the term, but that’s almost what it is. It’s like, ‘Gee, when the CEO of that company over there is making $20 million, I ought to make $24 million.’ Then the other guy says, ‘Well, if he makes $24 million, then I’ve got to make $30 million.'”
Corporate moguls, Lerach explained, have a character flaw that is often fatal. “The CEO ultimately gets brought down by the very personality characteristics that made him successful in the first place,” he said. “How did these guys get to the point where they control a big public company? It’s not because they take no for an answer. Their whole life has been fighting and overcoming people who say no, you can’t do it, don’t do it, it’s illegal. These guys say, ‘To hell with you, we’re doing it, we’re getting it done, nobody can stop me.'” And, when they get to the top, nobody dares stop them.
Do they steal in other ways?
Yes. We will be writing about two of them, the well-known corporate welfare that has supported by our tax dollars, and the much less known practice of paying substandard wages. Since these employees can’t afford health and other services, taxpayers are forced to pay this bill.