Thursday, June 30, 2011
On “Admitting” Guilt
How Barbara Swearengen Ware and James Kelsoe are alike and different.
Posted by John Branston on Thu, Jun 30, 2011 at 4:00 AM
Former Memphis City Council member Barbara Swearengen Ware pinned money on her clothes on her birthday.
Former Morgan Keegan fund manager James Kelsoe Jr. pinned bogus dollar valuations on complicated investment products backed by subprime mortgages.
Investigators pinned charges on both of them, and last week Ware and Kelsoe settled their cases and ended their careers.
Until they wound up in the local news on the same day, these fallen stars did not have much in common.
Ware, 72, is an evangelist and former post office employee who served on the council from 1994 until 2011 and rarely missed a meeting. She got thrown off for using her influence as a public official to get herself and others out of motor vehicle inspections. Her offense is understandable to any fourth-grader who has forged a hall pass to go to the bathroom.
Kelsoe, 49, was a star fund manager whose notoriety was such that he made The Wall Street Journal several times but rarely was he in the news in Memphis. His fraud has kept the lawyers with the Securities and Exchange Commission (SEC) busy for a few years. Former Treasury secretary Henry Paulson once said the investments in mortgage-backed funds were "so complex that even the most sophisticated didn't understand them."
Ware was charged criminally. Kelsoe was charged with civil fraud. "I can't comment on that," said William Hicks, associate regional director of the SEC in Atlanta.
Ware's case was handled in open court in Memphis. After taking her medicine, Ware met with reporters and her prayer circle. Kelsoe's "enforcement action" was announced in Atlanta. Morgan Keegan and Kelsoe laid low and made no comments.
Ware gets diversion, which means she won't go to jail, and resigned from the council. She must pay $100 to CrimeStoppers. Kelsoe was fined $500,000 and is banned from the securities business for life. Morgan Keegan agreed to pay $200 million to resolve civil-fraud charges.
Ware and Kelsoe are alike in this respect: They were both experts in valuation. Ware knew the value in time and trouble of going through the lines at inspection stations only to be told that your turn signal, windshield wiper, or oxygen sensor is screwed up and you have to fix it before you can pass. Kelsoe knew the value of the "collateralized debt obligations" in the Morgan Keegan bond funds he managed in 2007.
Ware didn't tell her colleagues or the district attorney general's office about her little deal, which deprived her constituents of representation during this year's budget battle. Someone, probably in the clerk's office, blew the whistle on her.
"She illegally obtained a benefit not available to some 200,000 other vehicle owners in Memphis who obeyed the law," said former district attorney Bill Gibbons when the indictment was announced last year.
Kelsoe didn't tell his firm's compliance department and Morgan Keegan investors about the true value of his funds. According to the SEC's 2010 complaint, some of his colleagues were frustrated by his arrogance. One of them wrote in an email that even the firm's financial advisers didn't understand the funds.
"The falsification of fund values misrepresented critical information exactly when investors needed it most," said Robert Khuzami, director of the SEC's Division of Enforcement. "Such misconduct does grievous harm to investors."
Ware and Kelsoe have this in common, too: Neither of them apologized or admitted guilt. In her "retirement" letter to the city council, Ware went on and on about her personal struggles, illness, service, and dedication. Only in a separate document accepting diversion did she acknowledge the facts of the criminal complaint against her. Kelsoe was charged in an administrative proceeding. Investors have heard nothing at all from him.
You wonder. What if Ware and Kelsoe had simply told the truth when it counted? Ware could have said, "People, you are wearing me out. Inspection is a pain. Deal with it. I have better things to do." Kelsoe could have told compliance, "We can take a hit now or risk a much bigger one down the road." But they didn't.
In his new book Tangled Webs, author and journalist James Stewart says lying and perjury are undermining America.
"A society that depends only on prosecutors and the judicial system to curb perjury will never succeed," he writes. "It must be stopped when it happens by others who recognize it for what it is and condemn it. It requires a capacity for moral outrage. ... But the ultimate responsibility for lying rests with the liar."
Comments (3)
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Well said, John. The other thing these cases have in common is the "too little, too late" syndrome. If these miscreants, who were in positions of trust, were capable of doing what ultimately brought them down, what else did they do to those who trusted them which, though suspected (and in Ware's case, that was plenty) was never discovered and for which they were never held accountable?
Dishonest behavior is indicative of a character flaw that manifests itself in a pattern of behavior, and not just in one-off occurrences. There is every reason to believe that maxim holds true in these instances as well.
P.S. "Without admitting or denying..." as you know, is a form of legal window dressing which only prevents what is, in essence, an admission from being subsequently used against the affected party. No one actually believes it isn't an admission, especially when the accepted punishment is as severe as it was for these folks (and I think we can all agree that Ware's resignation--the most severe part of her punishment-- was part of her deal with the DA, even though it wasn't disclosed as such).
Why were former Shelby county administrator, Tom Jones, and former mayor Rout allowed to go unpunished for their "character flaws". Oh, and what was that former city councilman's name who had all those shady business dealings with the city and his business. Oh yeah, Tom Marshall. No charges for him either. And will we ever know how much taxpayer money was spent on that fishing expedition against Willie Herenton, that yielded nothing, nada, etc........
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