Wednesday, April 28, 2010

Class Action

GM's high profile claim that it has repaid its federal loans "in full" has generated wide ranging skepticism, and no wonder. When you pay back a "loan" with government TARP money - itself a loan - rather than earnings from selling Aveos, that doesn't exactly inspire confidence. Also, the "loan" repayment amounted to $6.7 billion. Wait a minute, didn't the feds invest $50 billion other dollars in GM? Why, yes they did! Gee, it's almost like they're trying to fudge the difference in the hope that taxpayers won't notice. And,what happened to that money? Well, the hope is that the taxpayers will recover its investment when GM has its IPO "this fall." Who wants to bet that GM will quietly miss that deadline?

In the meantime, we are left to ponder what kind of world we live in where a corporation can use accounting trickery in a PR effort that seeks to benefit its bottom line AND provide a propaganda coup to the government, with even the president blithely hyping the "repayment." Under normal circumstances, Whiteacre could face potential securities fraud liability for this sort of thing, as Powerline explains, but he knows he can make these outrageous claims because its all done in service of Washington. Investigate This

Whitacre omitted two facts that rendered his column highly misleading. They are the kind of omissions that constitute securities fraud when made by a company in connection with the purchase or sale of a security or when a company reports its financial results.

If any investor bought GM shares based on Whitacre's column, it appears to me that the investor would have a good claim against GM. The SEC would in any event be warranted in taking a look at Whitacre's shenanigans on behalf of the company.

First, Whitacre omitted any mention of the remaining $50 billion or so that the government has sunk in the company's equity. Second, Whitacre omitted any mention of the source of the funds with which GM "repaid" the loan. According to TARP Special Inspector General Neil Barofsky, the source of the funds in whole or in substantial part was the United States government TARP program, not GM earnings.

There's more at the link. Coming at the same time as Carl Levin (D-GM) was cussing out Goldman Sachs for "fraud," and coming after a decade in which "Enron-accounting" became a watchword for the abuses of laissez-faire capitalism, this is almost a too cute example of political corporatism at work.

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