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Posts Tagged ‘spinning’



New Dem Party/Brown Whack at eMeg on Goldman

Friday, May 7th, 2010

The California Democratic Party, coordinating with Jerry Brown’s campaign for governor, is expected today to launch an attack on Republican front-runner Meg Whitman in the form of an “issues” ad calling on Congress to “stop special favors for wealthy Wall Street insiders,” sources told Calbuzz on Thursday.

The assault — which the Brown campaign would not confirm — comes as private polling by Republican Steve Poizner, by Whitman and various other candidates and initiative campaigns shows the Republican race for governor now within 10 points, with Poizner closing fast.

The CDP/Brown effort is aimed at weakening Whitman even further, especially among independent voters who will be crucial in the general election. If, as a side benefit, the ad campaign also erodes Whitman’s standing in the GOP primary, so much the better, sources said.

Whitman is struggling to douse the fires rising from attention focused on the fact that Goldman Sachs gave her access to initial public stock offerings that she “spun” or resold for personal profit while she was CEO at eBay. Goldman Sachs got eBay’s investment banking business and Whitman was, for a time, also a member of Goldman’s board.

The practice of “spinning” was legal at the time, but was outlawed shortly after a Congressional investigation and about the same time Whitman resigned from the Goldman board and returned $1.78 million in profits to settle an eBay shareholder lawsuit.

Calbuzz has not seen the CDP/Brown ad itself, but it has been described by media industry sources. According to them, the ad notes that a judge called Whitman’s spinning an “obvious conflict of interest,” that she was “forced” to return her profits and that she has “secretive offshore accounts, managed by Goldman Sachs, used by the rich to avoid taxes.”

In the same way the California Chamber of Commerce briefly used an “issues ad” to attack Brown, the CDP and Brown are using an “issues ad” to attack Whitman. The difference is that the Chamber is officially a non-partisan organization and the California Democratic Party and the Brown campaign are anything but non-partisan.

Official state parties may legally coordinate activity with candidates for partisan office which is apparently the framework in which this ad campaign is crafted. How much money the CDP will put behind the ad — money that was likely raised by Brown — is yet unclear. But the initial buy is expected to be about $1 million.

And Other Lies: The biggest canard in Governor Arnold’s dishonest crock of a disingenuous argument for scheduling the special election for Abel Maldonado’s former senate seat in the middle of summer is the purported need to have all legislative hands on deck to vote on a new state budget.

“We think it’s important to have a full complement of senators as soon as possible,” said Schwarzmuscle mouthpiece Aaron McLear said.

Puh-leeze.

Putting aside the fact that the $20 billion red ink budget will probably get voted on closer to Christmas, the clear-eyed Timm Herdt makes the very excellent point that if 15th SD front-runner Assemblyman Sam Blakeslee wins – an outcome Schwarzenegger is clearly trying to guarantee by setting the special for August 17 – there’ll be an open Assembly seat awaiting yet another special election, by which time the mendacious McLear will be well into his next million or so deceits.

Besides his little hissy fit of spite over the Dems taking their time to confirm Maldo as Lite Guv, there’s one and only reason that Conan set the date when he did – because the senate Republican leaders leaned on him to put his thumb on the scale so Democratic front-runner and former Assemblyman John Laird doesn’t capture the seat and put them on the brink of the two-thirds majority needed for budget votes.

The merits of consolidating the run-off vote with the Nov. 2 statewide are clear and overwhelming: sparing Central Coast counties the $2.5 million price tag of indulging Arnold’s whim, boosting voter awareness and turnout in the sprawling district, ensuring that military voters stationed overseas are full enfranchised – a matter that is resonating even with conservatives – as well as a batch of voting rights issue raised by newly-filed litigation that Schwarzenegger’s triggered with his partisan action.

Bottom line to Laird: “I think it was a political play, the Senate Republican leadership attempting to advantage themselves in the special election.” And what motivated Schwarzmuscle? “He was responding to the Senate Republican leadership in advance of the budget,” said Laird.

What hath Sarah wrought: While Sarah Palin’s Facebook endorsement of Carly Fiorina in the Republican Senate race offers iCarly a nice boost in the primary, the political backing of the Thrilla from Wasilla will reek like stinking fish by the time the general election comes around, should the Hurricane win the GOP nomination.

There’s not a lot of hard data available about how Californians view Palin, but polling from her stint as the 2008 veep candidate makes it clear what a polarizing figure she was even back when she was still a borderline wing nut, before she crossed the border and became a total whack job. Shortly after the Republican National Convention where she made her national political debut, the Field Poll found Palin’s favorable to unfavorable rating among Californians stood at 43-43; less than two months later her image stood at 37-53 favorable-unfavorable.

The big shift came among independents: In the first weeks after Palin’s launch, they viewed her somewhat unfavorably, 36-45; by the time they’d been more fully exposed to her charms, shortly before the election, DTSs had a 20-65 unfavorable view of her, a 36 point swing. All this, of course, before Palin resigned as governor of Alaska and evolved into a full time media bore.

Even California Republicans became slightly less enamored over time: they viewed her favorably 81-12 during the September survey and 74-19 in October, a net decline of 13 points.

Still her seal of approval is a big deal for Fiorina in the right-wing dominated primary, and even more of one, in an opposite way, for Orange County Assemblyman Chuck Devore, the true Tea Partier in the race, whose supporters took to Palin’s Facebook page to complain about her endorsement of Fiorina.

As for front-runner Tom Campbell, we have a feeling Palin’s gratuitous dis of Dudley – “a liberal member of the GOP who seems to bear almost no difference to Boxer, one of the most left-wing members of the Senate” – will find its way onto the air in the next four weeks.

Upadate 6:40 am: At 10:09 pm Thursday the Whitman campaign sent out the following statement: “This is a clear effort by the California Democratic Party and labor unions to defeat Meg Whitman, because she is the only fiscal conservative in the race who will reform the failed pension system and solve the fiscal crisis in Sacramento. The California Democratic Party, the public employee unions, and Steve Poizner have struck an alliance to defeat Meg’s effort to disrupt the status quo in Sacramento.”

Poiz Rips eMeg on Goldman but No Game Changer

Sunday, May 2nd, 2010

Five minutes into the GOP governor’s debate, Steve Poizner ripped into Meg Whitman on her ties to Goldman Sachs – charging that “a lot of people got damaged by Goldman Sachs and Meg Whitman’s right in the middle of it.”

“Meg Whitman has massive investments in Goldman Sachs, made huge amounts of money from the collapse of the housing market, and then, when it was time for Goldman Sachs to get bailed out by taxpayers, Meg Whitman actively campaigned for a taxpayer funded (bailout). The question is, did she let people know?”

It was the first of a series of aggressive and effective attacks on eMeg’s character and ideology that he landed against his front-running rival for the Republican nomination for governor in Sunday’s hour-long debate at San Jose’s Tech Museum, a solid performance that Calbuzz scored as a win for Poizner.

But solid as his victory was in the only televised debate of the contest, it fell short of the kind of dramatic game changer that the state Insurance Commissioner needs to overcome the former eBay CEO’s commanding lead five weeks before the June 8 primary.

It’s a plain fact that debates rarely change the basic dynamics of a major political race, especially one broadcast at 5 p.m. on a splendidly sunny Sunday in May; beyond this, and despite her feckless answers on Goldman Sachs and other in-your-face challenges, Whitman to her credit never wilted under Poizner’s withering fire, nor did she hand him a truly memorable moment suitable for a devastating TV ad – no lasting image of blunder, weakness or faltering faux pas.

With both of the contenders pandering shamelessly to the Tea Party wing of the GOP on issues from immigration to gun control, the core of the proceedings was Poizner’s line of attack on her personal integrity over her multiple connections to scandal-tainted Goldman Sachs.

As Whitman stood by glowering, arms tightly crossed in a defensive posture, Poizner bluntly assailed both her ethics and her judgment, particularly for accepting from the investment bank repeated IPO stock issues, then quickly “spinning” them to make quick and easy profits worth millions – a practice that was later made illegal.

“I did not do anything wrong,” Whitman insisted at one point. “It was a legal and standard practice. With 20-20 hindsight, would I do it again? No, because it was called into question.”

Poizner pounded at her answer:

Wow, you really don’t get this Meg…You were the CEO of eBay receiving investment banking services from Goldman Sachs, then you joined the Goldman Sachs board and their compensation committee, then Goldman Sachs started to feed you these sweetheart deals, not one, not two but 100 of them, and you made a fortune, a separate fortune from your eBay fortune and then until you got caught you didn’t think anything was wrong. But the fact is, Congress investigated what you did, they called it corrupt, the SEC investigated what you did and immediately declared what you did illegal, and the eBay shareholders investigated what you did and they sued you. They sued you for a huge conflict of interest and the only reason why you paid back any of this money is because you had to settle the lawsuit.

Not to put too fine a point on it.

Here’s a look at some of the other highlights of the debate:

Immigration: Just days after declaring his opposition to Arizona’s controversial new law aimed at illegal immigrants, Poizner announced that he now supports the measure, claiming that new amendments will prevent it from authorizing de facto racial profiling by law enforcement. He repeated the mantra of actions he has said he would take as governor against illegals – “turning off the magnets” of education and social services, cracking down on employers who employ undocumented workers and “sanctuary cities” in California, and using state resources to increases security at the Mexican border.

Poizner also charged that Whitman supports “amnesty” based on earlier comments she made about support for legislation that would offer illegals a path to citizenship. Whitman, who has said she misspoke in making those comments, was left to deny that she backs “amnesty,” but scored some points by pointing to Poizner’s conversion on the Arizona law as emblematic of his flip flops on other issues, from his days as a moderate Republican candidate for the Assembly to his current full-throated, red meat conservatism:

“This is a classic case of Steve Poizner changing his mind,” she said, noting that he is “an engineer…every election cycle he engineers a new position” to match the moment.

Tea Party – Asked if they considered themselves members of the Tea Party movement, the two fell over each other gushing about it. “Yes, I’ve been to a whole bunch of Tea Party events…I find myself really in synch with the Tea Party,” Poizner said, while eMeg chimed in, “I am a supporter…they are at their core fiscal conservatives…if the Tea Partiers and others are looking for the tough fiscal conservative in this race, I promise you it is me.”

Poizner’s record – Whitman was at her best in assailing Poizner’s political shape shifting, noting that he backed a 2004 ballot initiative to lower the Proposition 13 vote threshold on school bonds and opposed President Bush’s tax cuts, while also accusing him of increasing the budget in the Insurance Commissioner’s office. The latter charge led to an inconclusive exchange, as the rivals hurled conflicting newspaper reports on the issue: “You just do not know what you’re talking about,” Poizner snarled at Whitman, “They (the Sacramento Bee) called you a liar.”

Whitman’s record – Playing directly to the GOP right-wing, Poizner repeatedly hit eMeg for taking a cruise that was organized to examine the issue of global warming, and for having embraced the ideas of Van Jones, the left-wing green energy activist who was fired by the Obama White House after a series of his past radical statements were made public. He also blasted her for having supported Barbara Boxer’s re-election in 2004, ostensibly because Boxer opposed a new tax on internet services: “Because Barbara Boxer took a certain position on an Internet tax that would personally benefit her and her investment funds…Is that the way you make decisions about who to endorse?”

Right-wing pandering - Beyond their gushing comments about the Tea Party, both rushed to woo right-wingers on other issues.  Both of them blasted California’s AB32 climate change laws, and refused to say that they believe global warming is caused by human activity, claiming the science is unclear on the question, and both also claimed to support “open carry” anti-gun control legislation.

Voting – After refusing to say she had done anything wrong on Goldman Sachs, Whitman switched course on questions about her poor voting record and offered a direct apology:  “I was not as engaged and connected as I should have been…but I’m 100% engaged now.” But Poizner sharply criticized Whitman for her failure to vote until the last several years: “Not voting is a big deal – you can’t just wash it away with a simple apology.”

Near the end of the debate, Whitman made a statement that will reflect the frame of the rest of the primary campaign: “So I would ask you, not to judge me on the mistakes I have made, but the ideas that I have to fix California, to restore California to its greatness.”

As eMeg tries to spend the next five weeks telling voters about her ideas, you can be sure Poizner will stay tightly focused on telling them about her mistakes.

Meg vs Meg on Those Goldman Sachs Stock Deals

Thursday, April 29th, 2010

In her autobiography, “The Power of Many,” Meg Whitman discusses the charges against her for “spinning” initial public offerings that Goldman Sachs made available for her personal portfolio when she was CEO of eBay. It’s in a chapter titled “Results matter. Be accountable.”

Comparing what she wrote about her entanglement with Goldman Sachs  and what she told the Associated Press on Tuesday, however, we wonder what exactly eMeg means – if anything — by accountability.

Since this has become a big deal both nationally and in the California governor’s race, we’re reprinting some extended quotations from Whitman’s account of the affair, to see how they stack up against her more recent statements. We pick up her narrative on Page 148 (emphasis, ours):

After we [eBay] went public and Griff [her husband] and I needed professional help handling our investment portfolio, we decided to invest some of our personal funds with a completely separate group at Goldman Sachs, the Private Wealth Management group. As a wealth management client, I was indeed given access to IPO shares of other companies, which my private broker bought and sold for my account . . . However, the implication that there was a connection between eBay using Goldman Sachs as its banker on an ongoing basis and any benefit to my personal account investments was totally false;

I had never let my personal financial benefit influence my input on eBay’s banking choices. There was nothing illegal about IPO transactions my wealth manager made on my behalf. Such investment opportunities were common at the time, and I had never seen anyone in government, the media, or anywhere else raise the idea that this practice was a conflict of interest. . . .

When I learned I was on a list under scrutiny, I was surprised. The IPO investments made by Goldman Sachs on my behalf were a very small fraction of my personal investment portfolio. Given that I was a major individual eBay shareholder, I had far more to gain by working to make sure eBay used the most competent investment banking we could find. Anything that benefited eBay shareholders benefited me. . . .

Despite the inflammatory language of the investigation, these transactions were legal. No one ever suggested that they were not. . . . My board stood behind me and urged me to fight these [law]suits because they knew I had done nothing wrong and was deeply upset at the assault on my personal reputation and aghast at having eBay dragged into these stories about corporate greed. . . .

There was no conflict of interest, but when I look back I can see why the [congressional] committee pounced on the appearance of one. As I said earlier, [where she described how Goldman CEO Hank Paulson ran board meetings] I was not a good fit for the Goldman board which was the primary reason I resigned from it in December 2002.

In an interview Tuesday with the AP, Whitman repeated her statement that she resigned from the Goldman Sachs board of directors because it “wasn’t a good fit.”

“There was no link between accepting these IPO shares and funneling business to Goldman,” she insisted.

“The lesson learned about it is you have to be extra vigilant about seeing any actual or perceived conflict of interest. I missed the signposts here,” she said. “As I look back on it, would I do it again? No.”

There you have it: eMeg says she would not do the same thing over again — not because it was so unethical that it was later made illegal — but because she would want to avoid the appearance of a conflict of interest. In other words, she seems to be saying, “spinning” may have been outlawed later, but “It was legal when I did it, so what’s the problem?”

The only reason she acknowledges settling the lawsuit against her and other eBay board members for $3 million – including her share of $1.78 million – appears, at least in her book, to have been  because it was an annoyance:

The lawsuit remained a distraction and there was so much to do to run eBay and keep it growing that eventually I huddled with our lawyers and with Pierre [Omidyar] and Jeff [Skoll], who were also named in the suits, and we three decided to personally settle the suit with our own funds.

As Lance Williams noted, Whitman in the AP interview “didn’t address her service on Goldman’s compensation committee, where in two annual pay cycles she signed off on $79 million in bonuses for five top Goldman executives, including then-vice chairman Lloyd Blankfein, now the CEO.” (SEE BELOW)

In her book, Whitman said she put the story of Goldman Sachs in the chapter about accountability because, “.  . . the fact is, there was the appearance of a conflict and it bloodied our noses – mine in particular. . . . Those of us fortunate to hold any kind of leadership position in business must reject any appearance of a conflict even when we know that one does not exist . . . we have to be willing to be held to a higher standard.”

Um, how about just the standard we demand of our children, friends and mates: admit that you did something wrong and apologize. Whitman’s responses don’t even come close.

As Sterling Clifford, spokesman for Attorney General Jerry Brown put it, “Does she regret it because it was wrong or because it’s become an issue in her race for governor?”

Said Jarrod Agen, communications director for Whitman’s Republican rival, Insurance Commissioner Steve Poizner: “I’m sure there are several convicts that regret their crimes, but it doesn’t make them any less guilty.”

It’s worth noting that it was AP’s Juliet Williams who actually used the word “regret.” If Whitman said it, there was no quote to that effect. And let’s be clear what it was that got settled.

“In effect, the plaintiff shareholders allege that Goldman Sachs bribed certain eBay insiders, using the currency of highly profitable investment opportunities,”  wrote Delaware Judge William Chandler, who presided over the case

As Lance Williams reported, the executives “were able to flip these investments into instant profit,” the judge also wrote. “Whitman sold these equities in the open market and reaped millions of dollars in profit.”

But Whitman’s take on the whole affair is quite different. As she said in her book: her board knew she had done nothing wrong. That’s her story and she’s sticking to it.

This correction was later posted on Lance Williams story: (UPDATE: Whitman served on Goldman’s compensation committee, where in two annual pay cycles she signed off on $79 million in bonuses for five top Goldman executives, including then-vice chairman Lloyd Blankfein, now the CEO. The bonuses were based on competitive industry norms and the firm’s performance, the AP quoted her as saying.)

Goldman Sachs: A Case of False Equivalence

Tuesday, April 27th, 2010

One of the more persistently perverse practices of MSM journalism is the “false equivalence fallacy,” a technique too often seen in political stories, when reporters aim for even-handed balance but end up badly misleading readers.

A case study is the L.A. Times Saturday Sunday story, which posed “a phony evenhandedness,” as Ruth Marcus of the Washington Post once described false equivalence, between the connections of Meg Whitman and of Jerry Brown to the scandal-tainted investment bank Goldman Sachs.

A false equivalence fallacy occurs when someone falsely equates an act by one party as being equally egregious to that of another without taking into account the underlying differences which may make the comparison patently invalid.

In presenting an apples-and-oranges framework about the Goldman Sachs issue in the California governor’s race, the Times recalled political stories from the 2004 presidential race that matched unfounded charges about John Kerry’s record in Vietnam, where he won three Purple Hearts, with still-unanswered documentary questions about the service of George Bush in the National Guard or, more recently, cable TV shows that set up on-the-one-hand-on-the-other “debates” that include whack job “birthers” who charge that Obama was not born in the U.S.

Sometimes, attempts to present “balance” using the thin thread of commonality — e.g. Goldman Sachs — are wholly misleading. There really is an unbalance of connection and/or impropriety. One thing is actually more damning than the other and they cannot and should not be equated. This is a false equivalency.

Whitman’s links to Goldman Sachs are primary connections, which directly benefited her financially, both personally and politically; Brown’s are  secondary, at best, involving his sister’s employment at the firm and a complex policy decision about bond financing interest rates in Oakland, which was made a year before he was elected mayor there, which appears actually to have benefited the city during much of his tenure, and over which he had no direct control anyway.

Yet the Times story – online hed: “Whitman, Brown have ties to Goldman Sachs” – sends a clear message that these are matters of equal political weight, at a time when the bank has been charged with fraud by the SEC. Let’s look at the details:

Whitman’s connections to Goldman have been chronicled in detail by Lance Williams and Carla Marinucci.

1-Spinning. As CEO of eBay she steered millions of her company’s business to Goldman, a period in which she also engaged in “spinning,” a now-illegal insider stock deal in which the investment bank paved the way for her to buy early shares of hot IPOs. She was named in a congressional investigation of the practice and forced to return money she made from the deals to eBay after shareholders sued her. Her explanation: “It wasn’t illegal at the time.”

2-Directorship. Whitman was paid the equivalent of $475,000 in cash and stock options when she sat on Goldman’s board of directors for 15 months in 2001 and 2002. Among other actions, she served on the compensation committee, when it approved huge bonuses for Goldman’s current CEO, Lloyd Blankfein, and its previous chief executive, former Treasury Secretary Henry Paulsen, who oversaw the era of credit default swaps and consolidated debt obligations which is now the focus of the SEC fraud suit.

3-Contributions. Whitman has received at least $105,500 in contributions from Goldman executives to her campaign for governor, according to the Williams-Marinucci investigation.

Brown’s connections to Goldman, as set forth by Michael Rothfeld in the LAT:

1-Family. His sister, former state Treasurer Kathleen Brown, has worked for the bank since 2003, a family factoid that gains no elaboration, or further traction, in Rothfeld’s story as reflecting critically on Jerry Brown.

2-Oakland. A year before Brown took office as mayor, city officials did a deal with Goldman, known as an “interest rate swap,” in order to “guarantee Oakland stability in its debt payment,” according to Rothfeld. City officials renegotiated it in 2003 (before Kathleen went to work for Goldman BTW), paid off Goldman’s debt in 2005, but left the interest deal in place because canceling it would have cost $15 million, which was then considered a bad deal for the city.

At the time, Brown’s involvement consisted of a) being the non-voting president of the Oakland Joint Powers Financing Authority, which handled the negotiation and b) appointing the administrator in charge of borrowing for the city.  The Times story never even hints that Brown had anything to gain from the deal, even if he had had authority over it, and completely equivocates on the broader issue of whether or not it’s been a good deal for Oakland.

Today, because interest rates plummeted amid the Wall Street meltdown, the deal with Goldman is costing Oakland about $5 million a year, the story notes, but then adds this: “Oakland and Goldman officials say they believe the swap has benefited Oakland overall, though they provided no statistics to show that.”

Uh, so what exactly has Brown got out of his ballyhooed-by-the-Times  “connections” to Goldman Sachs?

Despite the total false equivalence between eMeg and Crusty’s* dealings with the investment bank, Rothfeld gave Whitman flack Tucker Bound a free hand to muddy the waters on an issue that threatens Whitman, allowing him to spin the non-event of Brown’s Goldman ties into the biggest scandal since Teapot Dome: “No matter how you look at it, Jerry and his sister were on both ends of a bad deal for taxpayers, and Goldman Sachs pocketed millions.”

Puh-leeze.

Fortunately for the Times, business columnist Michael Hiltzik presented a clearer-eyed view of the matter in a Sunday same day piece that recaps Whitman’s personal connections to the bank and drills down on the noxious “spinning” issue.

Yet the issue here isn’t anyone’s family connections or routine investments but Whitman’s acceptance of preferential treatment from a firm angling to do business with her employer…

As for her claim that no one ever suggested there was anything untoward about preferential allocations, not so. Financial regulators had been warning brokers for years that it was wrong to hand out hoards of IPO shares “to reward persons who could otherwise direct business to them.” Although that rule was directed at the brokers, not their customers, surely Whitman understood the concept of aiding and abetting. To avoid further confusion, the Securities and Exchange Commission later spelled out the rules: Offering such deals is now illegal.

And thank you for that.

P.S. For further understanding of what’s wrong with “spinning,” see the definitive Calbuzz piece by David Shapiro, a specialist on financial fraud at the John Jay College of Criminal Justice at the City University of New York.

* For the record, Calbuzz recognizes that the Simpsons character Herschel Krustofski, AKA Krusty the Clown and the Maitre d’ of Glee is spelled with a “K.” Our Department of Etymology and Copyright Infringement  is studying whether it would be appropriate to alter the spelling of “Crusty the General.”

Why ‘Spinning,’ Now Illegal, Was Always Unethical

Monday, April 5th, 2010

What Calbuzz does not know about corporate finance fills mountains of textbooks. But because we expect it won’t be long before we’re hearing a lot about charges of stock spinning against Meg Whitman, when she was CEO of eBay, we asked David Shapiro, a specialist on financial fraud at the John Jay College of Criminal Justice at the City University of New York, to spell it out for us. Here’s his offering:

By David Shapiro
Special to Calbuzz

In April 2005, Meg Whitman, CEO of eBay from 1998-2008, settled – without admitting wrongdoing – a case in which she and others had been charged with “spinning” initial public offerings (IPOs) that had been made available to her at a discount by Goldman Sachs in exchange — it was alleged — for Goldman getting eBay’s investment banking business.

Whitman and co-defendants Pierre Omidyar and Jeffrey Skoll agreed to disgorge their profits and pay $3 million (Whitman’s share was $1.78 million) into an eBay fund that was supplemented by a payment of $395,000 from Goldman Sachs. (Robert Kagle, another co-defendant and former member of eBay’s Audit Committee during the relevant period, did not contribute to the fund apparently because he did not earn any profits from spinning IPOs.)

“Spinning” is obtaining, from securities firms such as Goldman Sachs, shares of stock in start-up companies’ IPOs at a preferred price (that is, a discount) not available to ordinary retail investors. This enables investors like Whitman to make a short-term profit by selling the stock in the secondary market, days if not hours later, to retail investors at non-discounted prices.

The practice is now expressly illegal because it was deemed to be theft by favoritism.  The social harm that now is outlawed entails the wrongful delivery of the monetary value of the discounts to preferred investors selected by securities firms. The start-up company selling the IPO could have obtained a higher price by selling directly to ordinary investors if the securities firm had not sold them to selected investors at a discount.

Whitman has insisted that Goldman Sachs’s motivation in giving her opportunities to spin IPOs was due to her status as a pre-existing wealthy client of theirs, which she was, and not as disguised kickbacks or commercial bribery from Goldman Sachs to get eBay’s investment banking business, which they did in fact obtain.

The issue has been spun by Whitman apologists and others into: What were Goldman Sachs’ and Whitman’s respective motivations and intentions in giving and accepting the opportunities to spin?

Issues such as the appearance of impropriety, conflict of interest, breach of ethics, breach of duty of loyalty, etc. presumably take a backseat, while voters in California ponder:  What exactly were those motivations and intentions?

I seek to avoid this “he said, she said” cul-de-sac.

Conduct has two parts under our legal system:  The act and the accompanying state of mind of the actor.

Apparently, the best that Whitman can argue is that while she did perform the acts – receiving and then rapidly selling discounted shares unavailable to ordinary retail investors from a vendor (Goldman Sachs) competing for work from her principal (eBay) – she is not a criminal because Goldman Sachs had other reasons for favoring her: for example, she was rich.

No formal fact-finder such as a judge or jury has passed judgment on what happened, including Goldman Sachs’s alleged innocence in demonstrating favoritism to Whitman, who also served briefly on the Board of Directors of Goldman Sachs.  Therefore, she’s not a criminal under the law. But was she ethical?

The House Financial Services Committee released data to the public in early October 2002 regarding the spinning issues, naming beneficiaries of Goldman Sachs that included Whitman.  According to eBay’s Code of Business Conduct and Ethics adopted by eBay in 2002 under the section “Receipt of Favors and Gifts” Whitman’s conduct in the spinning adventures would have been expressly unethical had these principles and rules been effective while she spun, notwithstanding her pre-existing wealth or Goldman Sachs’s alleged innocent reasons for favoring her.

Essential issues, such as whether Whitman requires express and detailed guidance from others in order to behave ethically and whether she can admit to having acted unethically, are still unresolved.

The excuse that “it wasn’t expressly prohibited when I did it” might have proven useful in fending off regulatory agencies such as the Securities and Exchange Commission, but how persuasive is this excuse in the context of determining what is ethical?

Couldn’t Whitman have determined, on her own, the implications of receiving favors and gifts from vendors?  Is she to be held to the same standard as my 12-year-old daughter who ate all of the chocolate chip cookies because I didn’t say she couldn’t?

Whitman may be many things, but naïve is not likely one.  Unfortunately, receiving favors and perks on account of wealth and position is neither unusual nor novel, and determining precisely whether Goldman Sachs’s favors were attributable to her highly valued personal portfolio of investments or her position as eBay CEO is presently irrelevant.

The existence of express prohibitions in eBay’s Code of Business Conduct against receiving the kinds of favors and gifts that she had received from Goldman Sachs might have been a condition of settlement with regulatory authorities or perhaps indicative of the proverbial “closing the barn door after the horses have left.”  I don’t know.

Whitman has neither conceded that her spinning conduct was unethical nor conceded that there’s something broken in a social system that allows the wealthy to benefit at the expense of the ordinary. California voters will have to decide what that says about Meg Whitman’s ethics and her fitness to be governor.

Assistant Professor David Shapiro teaches courses in  Financial Accounting, Management Accounting,  Forensic Accounting, Forensic Financial Analysis, and Public Sector Accounting and Auditing. His research is focused on measuring and evaluating the relationship between law and financial fraud. He has worked extensively in the private sector, conducting numerous investigations of misappropriations, fraudulent financial reporting, and corruption in different types of organizations, including public filers and labor unions. He is a contributing author to the “CPA’s Handbook of Fraud” published by the American Institute of Certified Public Accountants.