Fiduciary Duty to Cheat? Stock Market Super-Star Jim Chanos Reveals the Perverse New Mindset of Financial Fraudsters
American business has always had cheaters and crooks, but today they are escaping prosecution and are incentivized to cheat more.
Editor's note: This article is the first in a new AlterNet series, "The Age of Fraud."
Hustlers. Cheaters. Crooks. American business has always had them, and sometimes they’ve been punished. But today, those who cheat and put the rest of us at risk are often getting off scot-free. The recent admission of Attorney General Eric Holder that systemically dangerous megabanks may escape prosecution because of their size has opened a new chapter in fraud history. If you know your company won’t be prosecuted, a perverse logic says that youshould cheat and make as much money for shareholders as you can.
Jim Chanos is one of America’s best-known short-sellers, famed for his early detection of Enron’s fraudulent practices. In deciding which companies to short (short-sellers make their money when the price of a stock or security goes down), Chanos acts as a kind of financial detective, scrutinizing companies for signs of overvaluation and shady practices that fool outsiders into tlhinking that they are prospering when they may be on shaky financial footing. Chanos teaches a class at Yale on the history of financial fraud, instructing students in how to look for signs of cheating and criminal activity. I caught up with Chanos in his New York office to ask what’s driving the current era of rampant fraud, who is to blame, what can be done, and the ways in which fraud costs us financially and socially.
Lynn Parramore: You’re often characterized as a short-seller. How does fraud become a concern in that context?
Jim Chanos: One of things we like to say is that in virtually all cases of major financial market fraud over the past 20 years, the only people who really brought forth the fraud into the light were either internal whistleblowers, the press, and/or short-sellers. It was not the normal guardians of the marketplace – regulators, law enforcement, external auditors or people like that — that did it. It was people who had an incentive to come forward either for personal reasons or for profit to point out what was going on at the Enrons and the Sunbeams and Worldcoms. Short-sellers played an important role in the marketplace not only in terms of capping, sometimes, irrational exuberance in terms of prices, but also in ferreting out wrongdoing.
Keep reading: Fiduciary Duty to Cheat? Stock Market Super-Star Jim Chanos Reveals the Perverse New Mindset of Financial Fraudsters | Alternet.
