Cathal Lyons –V– the Hyenas of Capitalism

To penetrate the basic human predicament is more important than to fly to the moon

Friedrich Durrenmatt Swiss-German playwright and novelist

I’ve spent the last few days reading through the court documents relating to Mr Cathal Lyons ongoing saga with one of the world’s most powerful Hyenas of Capitalism, Ernst & Young (“E&Y”). Prior to his falling out with E&Y, Mr Lyons was Managing Partner of Operations and Chief Financial Officer of E&Y CIS based in Moscow. Following a traffic accident, Mr Lyons was forced to take significant periods off work. During one of his extended periods of forced recuperation an unexplained payment of the Russian Ruble equivalent of €120,000 passed through the books of the E&Y CIS practice. Another former E&Y partner, Mr James Mandel, was asked by E&Y to investigate the transaction. It appeared to Mr Mandel that the payment had been used to bribe a Russian judge in a tax avoidance case involving E&Y.

True to their belief in the ‘rule of law’, the doctrine of transparency and E&Y’s own code of ethics, Messers Lyons and Mandel decided to pursue the issue of the payment. In furtherance of this end, Mr Lyons made arrangements to discuss the payment further with one Maz Krupski under the protection of Ernst & young’s ‘ethics hotline’, put in place to protect whistleblowers. The end result was that the Hyenas of Capitalism turned on Messers Lyons and Mandel appointing Mr Herve Labaude, General Counsel of E&Y Europe, the Middle East, India and Africa (EMEIA), Services Limited based in London to deal with the ‘situation’. Mr Labaude proceeded to close Mr. Mandel’s investigation and to terminate Messers Lyons and Mandel’s employment arrangements with E&Y:

To the best of my knowledge, the only two “consultant agreements Mr. Labaude reviewed were those of Mr Lyons and mine and I believe that was in order to take reprisals against us because of our discussion with Mr Krupski … It is unlikely that Mr Labaude could have taken these actions, which clearly violated Ernst & Young’s Anti-Corruption policy, without authorization by Ernst & young (EMEIA) Services Limited. (My emphasis).

James Mandel, Witness Statement

The Hyenas of Capitalism and the juggernaut of greed

Sadly Messers Lyons and Mandel are not the only victims of the E&Y Hyena of Capitalism, which is part of what I euphemistically refer to as the juggernaut of greed. The global financial crisis (“GFC”) or global economic crisis is commonly believed to have begun in July 2007 with the credit crunch, when a loss of confidence by US investors in the value of sub-prime mortgages caused a liquidity crisis. The collapse of Lehman Brothers on September 14, 2008 marked the beginning of a new phase in the GFC. Governments around the world struggled to rescue giant financial institutions as the fallout from the housing and stock market collapse worsened. Indeed the impact from the collapse of Lehman Brothers was such that the US Federal Reserve Chairman Ben Bernanke, was of the view that the situation was so grave that he uttered the chilling phrase “There will be no economy on Monday.”

One of the issues surrounding the collapse of Lehman Brothers was the way in which E&Y as the Lehman Brothers auditors had audited the Repo 105 and Repo 108 transactions. These were devices used by Lehman to disguise its true leverage ratios and to enable it to raise short-term funds, even as it edged towards collapse in 2007.

On March 11, 2010, Mr Anton Valukas the Bankruptcy Examiner on the Lehman Brothers Bankruptcy released his report on Lehman’s Bankruptcy. The release of Mr Valukas’ report caused Britain’s Accountancy and Actuarial Discipline Board to open an investigation into E&Y. At issue was the following comment in the Valukas report:

The Examiner concludes that sufficient evidence exists to support colorable claims against Ernst & Young LLP for professional malpractice arising from Ernst & Young’s failure to follow professional standards of care with respect to communications with Lehman’s Audit Committee, investigation of a whistleblower claim, and audits and reviews of Lehman’s public filings. (Bankruptcy Examiner’s Report V3, Pg 1027)

The Bankruptcy Examiner, Anton Valukas, on the Lehman Brothers Bankruptcy as quoted in Re: The Auditors

In June, 2012, Britain’s Accountancy and Actuarial Discipline Board announced that E&Y would not face legal action over its handling of Lehman’s off-balance sheet transactions in the lead-up to the GFC. However Britain’s accounting regulator is continuing its investigation into E&Y’s supervision of Lehman’s compliance with the Britain’s rules on the protection of client money.

In the US, E&Y’s problems with the Lehman’s bankruptcy continue. New York state prosecutors have alleged in a lawsuit that E&Y approved of Lehman’s increasingly frequent use of the Repo 105 device, which allowed the troubled bank to sell troubled loans before it released results and then buy them back afterwards. The 32 page suit alleges among other things, that:

These Repo 105 transactions had no independent business purpose and were designed solely to enable Lehman to manage the company’s financial balance sheet ‘metrics’

According to the New York state prosecutors suit, “Ernst & Young ‘sat by silently’ as Lehman Brothers tried to hide its financial troubles”. And what financial troubles they were.

While the mainstream media, local and foreign regulators, law makers and the international business community blamed everything but fraud for the GFC, E&Y’s favorable audits of the main culprits continued with unabashed verve, issuing unqualified audit reports on UBS while an alleged rogue trader exploited controls on the trading floor booking a loss of USD 2 billion. Then there’s the report by Carol J. Williams that appeared in the Los Angeles Times on April 12, 2011 concerning E&Y’s role in the option backdating scheme at Broadcom Corp. In handing down their decision, the three-judge panel of the U.S. 9th Circuit Court of Appeals in San Francisco said that E&Y’s audit “amounted to no audit at all.” I must not forget to mention E&Y’s involvement as auditors in the fraud at Japan’s Olympus, or Wal-Mart bribery case in Mexico. While on the bribery issue, we must not forget that E&Y were auditors of News Corp during the time it was accused of all types of sharp practices on both sides of the Atlantic. Ah, what a bastion of Christian virtue we have in E&Y.

ARBEIT MACHT FREI

After reading through Messers Lyons and Mandel’s statements, I took some time out to indulge in a glass or two of Duplais Verte Art Edition Absinthe and watch Diop Mambety’s film Hyenes. Hyenes is a film from Senegal adapted from Friedrich Durrenmatt’s play, The Visit. As many readers of Blak and Black will no doubt be aware, Friedrich Dürrenmatt is a Swiss-German playwright and an icon of post-war European literature. In his essay “Das Hirn“, Durrenmatt depicts the evolution of the universe as the thought process of a cosmic brain. At first, the brain contains nothing, its only sensation a feeling of utter emptiness. To fend off the dread of nothingness, it gradually begins to think. Little by little, it conceives of a reality external to itself. It envisions the origin of matter, the development of living organisms, the birth of humankind, and, ultimately, the whole unfolding of human history, up to the wrought-iron sign ARBEIT MACHT FREI over the entrance gate to Auschwitz.

Having imagined everything from the dawn of time to the twentieth century, thought has finally foundered on the unthinkable: “It’s as if the place had conceived of itself. It just is. Meaningless, bottomless, incomprehensible.” In Dürrenmatt’s view, the shocks and traumas of the twentieth century cannot be grasped by rational thought. Horrors like the Nazi death camps cast doubt on whether reason can govern human affairs.

A recurrent theme in Durrenmatt’s work and one most prominently displayed in The Visit, is the perversion of justice. Durrenmatt throughout his writing life presented an exhilarating range of imaginative variations on how the ideals of justice get turned on their heads and how humanity’s wilful efforts to improve its lot backfire. Wielded by human hands, justice all too often turns into its opposite. Durrenmatt’s characteristic technique is to augment this paradox to grotesque proportions for comic effect, thereby rendering it all the more tragic

The theme of Hyenes in keeping with the theme of The Visit is greed versus loyalty. The same theme that runs through Messers Lyons and Mandel’s on-going sage with E&Y, I don’t intend to spoil reader’s enjoyment of Hyenes by revealing any more of the plot, beyond suggesting that greed seems to be a universal and all-consuming human failing, while loyalty, well, it’s just a consumable, to be discarded with the rubbish when it reaches its ‘use by date’.

While on the issue of Durrenmatt and E&Y I might take a little detour and consider another of Durrenmatt’s plays, The Meteor. The Meteor is a metaphor for Dürrenmatt’s view that the world is “something monstrous, a riddle of misfortunes which must be accepted but before which one must not capitulate.” It deals irreverently with two theological premises: Christian resurrection and salvation by grace. Its central character, Wolfgang Schwitter, is an intense, wild figure, an aging writer, winner of the Nobel Prize. Savagely disgusted with life, he rages across the stage like an exhausted Hemingway, longing for death, unable to die or to stay dead, while the characters about him, who want to stay alive, keep dying. Drunken, lecherous, mean, he displays the range of venality possible for a human being who no longer fears any consequences, his rage deepening the longer he is denied the release of death.

The relevance of The Meteor to Messers Lyons and Mandel and the GFC is that at the centre of it all is E&Y. The E&Y we are talking about is the same E&Y that has built its reputation around what are in essence the core Christian values of obeying the ‘rule of law’, ethics and transparency, values Christianity in turn inherited from Judaism via the Old Testament. These are the same Christian values that did not shrink from placing ARBEIT MACHT FREI above the gates of Auschwitz. They are also the same Christian values that see nothing wrong with all the death, destruction and human misery, not to mention environmental damage that has followed in the wake of the GFC. To the Hyenas of Capitalism, all are expendable in pursuit of the almighty Dollar, or Rouble, or Euro, or…

Like Auschwitz, but without the xenophobia and racism, the GFC is “as if the place had conceived of itself. It just is. Meaningless, bottomless, incomprehensible.”

To the so-called good Christian souls who guard the bastions of the world economy, while conceiving of such unthinkable things as the wrought-iron sign ARBEIT MACHT FREI over the entrance gate to Auschwitz or the GFC, or even bribing a judge hearing a case involving you: Greed has been an ongoing theme in Jesus’ training of his disciples. Sometimes it is implied, other times it is out in the open:

• Calling Levi the Tax Collector.
• Parable of the Sower, about thorns of riches that choke spiritual life.
• Pharisees who inside are full of greed.
• Giving a party in order to be reciprocated by one’s “rich friends.”
• The Prodigal Son who squanders his wealth on wild living.
• The Parable of the unjust servant.
• We cannot serve God and mammon.
• Parable of the Rich Man and  Lazarus.
• The Rich Young Ruler, and the saying about the impossibility of a rich person to enter the Kingdom.
• Story of wealthy Zacchaeus’  generosity.

But of all of these, today’s passage focuses directly upon greed, as Jesus teaches his disciples about this hard-to-discern spiritual killer.