Monday, June 16, 2008

Stephen Cooper's Business: The past is prologue

Stephen Cooper runs companies in bankruptcy or financial distress. Past clients include Enron, Krispy Creme, and Collins and Aikman.

Current clients include American Home Mortgage as this press article indicates.

So how does Stephen Cooper get all the best clients?

Well he is competent in business administration even if he thought he could make a viable business of Enron.

But there are plenty of people competent in business administration and they didn't think that they could recover anything viable from Enron. Krispy Kreme (another Cooper business) has not turned around even though Stephen Cooper collected his "success fee". In that case - and I am not kidding - Stephen Cooper's definition of success was the elapsing of sufficient time.

There is however a simple way that Stephen Cooper gets his business. He never sues past management.

When he was appointed to the Enron position he simply disavowed any responsibility to sue past management. The New York Times article cited above quotes as follows:

But Mr. Cooper emphatically refused to speculate on what brought Enron down.

''It's literally of no interest to me,'' he said. ''I'm not going to spend time here looking in the rear-view mirror.''

This was despite the fact that one of the best avenues for recovery for Enron creditors was to chase past management - some of whom were never prosecuted and have huge fortunes. (See for example Lou Pai who is reported to have well over $100 million and married his stripper girlfriend.)

There were similar failures to even consider prosecuting past management in the Krispy Kreme case (even though there were plenty of allegations of impropriety).

Indeed Stephen Cooper is who you appoint if you have something to run from. Whilst the past is of no interest to him - it is prologue for anyone who is a creditor or shareholder in a Stephen Cooper run shop.

The saga of how Cooper got to this position is well told in this book by Lynn LoPucki.

Given that liquidation is a big business - and some of us want to make money buying the defaulted paper of firms in bankruptcy - its worth understanding Stephen Cooper.

The Marsh & McClennan connection

Stephen Cooper has now sold his business (even though he remains the CEO). The owners are Marsh, Mercer, Kroll - part of the Marsh & McClennan empire.

The busienss of selectively electing not to sue past management may be legal (I guess - though I am not a lawyer). However it is not obviously in the interests of creditors and I would have thought that the administrator has to act in the interests of creditors.

Nobody I know has taken the step of suing Marsh & McClennan (NYSE:MMC) for the behaviour of their subsidiary. Again I am not a lawyer - so maybe it is not actionable.

All I want to comment on is despite broker commissions kickbacks exposed by Spitzer, paying the CEO of the NYSE too much money (exposed by Spitzer) and late trading at Putnam (exposed by Spitzer) it is possible that not all was done.

Someone needed to look into the Kroll, Zolfo, Cooper subsidiary.

Spitzer may have been caught after his pants were down - but in my view he was caught before he finished the job.

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The content contained in this blog represents the opinions of Mr. Hempton. Mr. Hempton may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Hempton's recommendations. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author.  In particular this blog is not directed for investment purposes at US Persons.