The comments on Twitter expressing amazement about the latest crop of financial frauds (and there are always new ones) often point at the SEC and its seeming lack of action in holding companies accountable for the losses that investors are racking up when the realization hits that yes, their money’s really gone. Spent, stolen, transferred to another company, basically disappeared. And since corporate management is having more trouble finding new investors these days to keep the party going, likely gone for good.
It’s been a generation since the securities law that allows companies to tell us great stories about their futures without penalty was passed. So long that most of us have forgotten what it was like to have financial statements that were only based on generally accepted accounting principles, instead of adding a set of basically whatever corporate management decides to present. Long enough to forget that auditors and attorneys who reviewed and advised corporate managers about their forecasts had real skin in the game if their advice turned out to be wrong.
The “loophole” is officially known as the Private Securities Litigation Reform Act of 1995. Seems like back then shareholders were also frustrated with losing money on bad deals, but they were able to sue for their losses. They could use their reliance on management’s projections about the future of the business as a main reason for their investments, and their failure to achieve these results as a reason for recovery. Imagine, basing your estimate of the future value of a business on the assumptions the people running it give you, and imagine they could be held liable if they were lying!
The most famous part of this law is the so-called “safe harbor” provisions for corporations, their managers, and their advisors. The Act “provides a “safe harbor” (from being sued) for forward-looking companies to provide prospective information, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those disclosed in the statement”. You’d be forgiven for thinking that this could basically let you say anything you wanted as long as you also point out that it might not actually happen. And that your advisors would be protected from liability if they let you publish your forecasts in your SEC filings, as long as you also publish a disclaimer that essentially walks back basically anything if circumstances change. And, by the way, you don’t have to update your forecast if they do. After all, it’s just a forecast.
You could ask, why bother to go through the motions of making a forecast if you’re going to turn around and undercut it with all this fine print to avoid liability? Turns out, our marketing friends have done their homework. Our brains are built for maximum efficiency - having to second guess every inbound signal is very inefficient, so the default option is to believe what we’re told. When that also synchs up with what we want to hear, we’re sold. The fine print slide is hard to read, and we don’t really want to anyway.
I promised myself, and you as my audience, that these posts would be more than just a way to broaden your view. I want to remind you that we are all free agents, at least in being able to make choices about how we think, how we treat others, and where we put our money. Counting on “them”, whoever they happen to be, to look out for our interests does leave more time for bingeing TV, but it’s a crapshoot at best. Given that you now know there’s no real penalty when managements “mis-represent” the outlook for the future of your investments, or more charitably when they are overly optimistic, how can you really do your due diligence on an investment, or an investment guru? Look for managements and advisors who will show you their track records, which means at least enough time on the job to actually have one, whose money is in the same pile as yours will be, and who run their businesses instead of their mouths. The most important part of a performance record isn’t what your best year has been - it’s what happened after you had your worst one. And spending time in prison for securities fraud isn’t a good answer. One good metric for public companies is the How We’ll Get Paid to What We Do ratio. Count the number of pages in the section of the 10Q/10K devoted to executive comp - options, contingent compensation, etc. and compare it to the number of pages in the Management’s Discussion of Operations section. This is where you should see a description of what the company actually does. A ratio higher than 1/1 is a flag, or at least a reminder that you need to have a careful look at actual performance instead of just relying on forecasts. In a bull market, even pigs fly. But these days it pays to see if they have any cashflow beneath their wings.
Absolutely, consumer protection by any Zar or commission is a false sense of security that fueled the last decade of securities growth. Combine zero interest and money printing, zombi banks, PE owned hospital and prison sectors along with tech and retail chains. And the frauds go on and on.
So the Ruler's got it all wrong and want a RESET!? NEVER.
The only reset worth considering will have rulers, kings, emperor's, presidents, bureaucrats and billionaire's all nixed out of the equation. AI and Blockchain can replace human greed and lust for power over things and others.
People need to be, just people, doing people things that nature intended. Not slaves to an empire.
We regular folks can get it right this time. They had their shot and many, many second and third stabbs at ruling civilization but only failed the peasants in the endgames, every time.
Of course they beg for another chance because it's our fault we just can't manage their systems.
FedNow, they're taking over with CBDC, that will do it. Surly they'll leave just enough rope to hang ourselves with just to prove their point.
Wonder what the punisher's would do if nobody complies this go-round.
In conclusion, fossil fuels shouldn't have been civilization's goto energy source.
The ancient EGYPTIANS figured that out long ago and somebody that discovered them knew it but apparently wasn't intelligent enough to share.
RA
https://en.m.wikipedia.org/wiki/Ra