Saturday, October 22, 2005

Miers Misled the Judiciary Committee

(This is an extended version of an article published at Raw Story this past Thursday: "Miers provided misleading information to Judiciary Committee.")

President Bush’s pick for the Supreme Court apparently provided erroneous and incomplete information to the Senate Judiciary Committee about her membership on a Board of Directors for a real estate investment company.

Along with what appears to be a misrepresentation of her tenure at the publicly traded REIT, Harriet Miers also neglected to mention her role as chair of the Audit Committee for Capstead Mortgage, as well as a class action lawsuit that accused the corporation of violating federal securities laws. The suit, which was later dismissed, came during the period Miers failed to include in her responses to the Senate questionnaire.

According to Capstead’s 1999 annual report (pdf file) filed with the U.S. Securities and Exchange Commission, Miers remained on the board as late as March 9, 2000. Miers opted not to stand for re-election, and in April of 2000, the former senior managing director at Bear, Stearns & Co., Inc., Howard Rubin was voted on to the board and replaced her as chair of the Audit Committee. However, inside the 57-page questionnaire she returned to the Senate on Tuesday, Miers wrote that her tenure at Capstead lasted from January 1993 to 1997 (link).

At Capstead’s corporate Website, Miers is listed as chair of the Audit Committee and a member of the Nominating Committee in the 1999 annual report (pdf file). Miers also chaired the Audit Committee in, at least, 1995 (link), 1996 (link), 1997 (link), and 1998 (pdf link).

Capstead’s guidelines for the Board of Directors (link) state that chairs for each committee are appointed on an annual basis. In addition the Audit Committee’s duties are spelled out:

The Audit Committee shall establish and maintain a committee charter which sets out its purpose and responsibilities to include, at a minimum, the assistance in the oversight of (i) the integrity of the Company's financial statements; (ii) the performance of the Company's internal audit function and independent auditors; (iii) the independent auditor's qualifications and independence; and (iv) the Company's compliance with legal and regulatory requirements. The committee shall be directly responsible for the appointment, compensation, retention and oversight of the Company's independent auditors.

The SJC questionnaire asked Miers whether or not she was party to civil legal or administrative proceedings:

State whether you, or any business of which you are or were an officer or any partnership, trust or other business entity with which you are or were involved, have ever been a party or otherwise involved as a party in any civil, legal or administrative proceedings. If so, please describe in detail the nature of your participation in the litigation and the final disposition of the case. Include all proceedings in which you were a party in interest.

Miers responded that she didn’t “recall being a party to any civil, legal, or administrative proceedings” and that her “firm was a party to a number of law suits but that she was never the “subject of complaint.”

In addition, in various roles (such as the Lottery Commission, Dallas City Council Member, State Bar of Texas President, Dallas Bar President), I may have been named as a defendant in my official capacity in civil suits. I have no specific recollection of any such suits and they would have been handled without my involvement. I do not have any information about their disposition.

For whatever reason, Miers neglected to mention a class action lawsuit for violation of the Securities Exchange Act of 1934 that was filed against Capstead in July of 1998 (link) and consolidated with 23 similar suits in March of 1999.

The plaintiffs, individuals or entities that purchased or otherwise acquired Capstead Mortgage Corporation stock between 4/17/97 and 6/25/98, “complain[ed] of a scheme by Capstead…and its top insiders to cause Capstead's stock to trade at artificially inflated levels by misrepresenting Capstead's financial results, its business, and the success of its investment strategy.” Several of Miers fellow board members were named as defendants, including former CEO Ronn K. Lytle and current CEO Andrew F. Jacobs.

A July of 1998 press release (link) explained that defendants misrepresented “the strength and diversification of Capstead's portfolio, falsely representing to the market that the Company had positioned itself to generate strong earnings in virtually any interest rate environment” and “issued false financial statements that overstated Capstead's earnings and assets by failing to take necessary write downs to the portfolio."

Finally, on June 26, 1998, Capstead could no longer conceal its huge problems. Capstead announced that it would write down the value of its mortgage servicing assets and sell its interest-only securities at an enormous loss, resulting in losses of about $255 million in the second quarter of 1998. These losses were greater than all the net income the Company reported during the entire 14-month class period from April 1997 to June 1998. Upon disclosure of the truth, the price of Capstead's stock fell immediately to as low as $8 11/16, 68 percent lower than the Class Period high of $27 13/16, on huge volume. The complaint charges that, at the same time defendants were artificially inflating the market, insiders exchanged certain Capstead securities for cash, resulting in more than $10.6 million in proceeds to the insiders.

Miers wasn’t specifically named in any of the suits, but as the chair of the Audit Committee her duties may have led to some of the financial aspects of the allegations, in the eyes of the plaintiffs.

Sam Nichols, lawyer and blogger, tied Miers’ membership on the board to the class action suit over two weeks ago in open letters to Senators Reid and Santorum posted on his blog. Nichols believes Miers wasn’t “personally named in the lawsuits because she wasn't smart enough or foolish enough (depending on how you look at it) to sell when the stock was up.”

As noted in a February 15, 2000 press release (link) the mortage investment firm’s assets were approximately $9 billion. As late as January 31, 2000 Miers beneficially owned 43,822 Common shares in the REIT (pdf link), including options to purchase 32,892 Common shares and 1,125 held by her mother. RAW STORY wasn't able to determine if or when Miers cashed in her holdings.

Finally, in late 2003, Haynes Boone, an international law firm based in Texas, prevailed for the defendants’ side in federal court (link):

The court dismissed the consolidated complaint and denied Plaintiffs leave to replead. The court held that Plaintiffs had failed to allege misrepresentations or omissions with the particularity required by federal law, and had failed to allege facts giving rise to a strong inference of scienter.

Michael Boone, one of the law firm’s co-founders, was included in an October 5th press release issued by Progress for America, a conservative issue advocacy/grassroots organization backing Miers, that named friends and supporters available for media interviews on the Supreme Court nominee’s background (link), stating that “Mr. Boone has more than 30 years experience practicing law in Dallas where he worked closely with Harriet Miers on numerous issues.”

Yesterday, the Associated Press reported that “Judiciary Committee Chairman Arlen Specter, R-Pa., and senior Democrat Patrick Leahy of Vermont agreed Wednesday to begin Miers' hearings on Nov. 7, but also jointly sent a letter to the White House counsel asking her to more fully answer a questionnaire she turned in Tuesday (link).”

“The comments I have heard range from incomplete to insulting," Leahy said at a press conference.


There's more to this story to come very shortly.


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