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Does Andrew Hall Have a Little Andy Fastow in Him?

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

They already share a first name.

Other than that, they probably don’t have much in common but does anybody else have a problem with the fact that the head of the energy trading unit that Citigroup sold to Occidental last year is setting up a hedge fund?

It would be an entirely different situation if Andrew Hall were leaving Occidental to do this, but he isn’t. Instead, he will wear both hats simultaneously.

That sure sounds like a clear conflict of interest to us. After all, fee structure of a hedge fund clearly incentivizes Hall to favor its investors over Occidental’s, though the oil company has a 20 percent equity stake in the fund.


The FT doesn’t explore this issue for some reason, referring merely to the fact that the two companies will be run “separately” and that the trades will be done “in parallel,” whatever that means.

And the article’s point about this deal having an air of history about it seems woefully misplaced.

Forget the fact that Hall’s hedge fund, Astenbeck, is named after a village near the historic German castle he owns. The more telling historical reference has to do with the conflict of interest. Indeed, the last time we saw a conflict this clear-cut was when Andrew Fastow ran some of Enron’s key off-balance-sheet partnerships while serving simultaneously as its CFO.

It was the disclosure of that particular factoid in a footnote that helped prompt short seller James Chanos to question Enron’s financial results back in early 2001.

And maybe this is just a coincidence, but Enron was an energy trading company as well. Remember Get Shorty?

As a side note, my colleague Matt Quinn wonders if Hall’s hedge fund will attract a lot of Citigroup’s former fund investors, and even draw Citigroup itself as an investor. That would certainly make sense if the bank is forced to get out of proprietary trading, as the Obama administration is proposing. Plus the bank would get to benefit from trading without having to reflect the risk on its balance sheet.

But the big question is, would Citi and its investors be treated better than Occidental’s shareholders?

Andy Fastow Is Out of Prison

Technically! He’ll be in a halfway house until later this year (BOP says December 17) but getting out of the big house has to feel good.

However, Drew won’t be able to apply for a position at one of those Chinese companies who are losing CFOs left and right. He still has to get reacquainted with society and whatnot:

“It’s a bridge, if you will, a transition period,” said bureau spokesman Edmond Ross. The purpose of the halfway house is for prisoners to reestablish family ties and adjust to society outside of prison, he said. Prisoners are allowed to leave the facility to go to their jobs, but their movements are still controlled. “They cannot come and go as they please,” said Ross. “Their lives are restricted to the rules of the halfway house.”

First things first, Andy – Twitter account. Oh, and maybe subscribe to our enewsletter.

Enron exec Fastow nears prison release [CNN]

(UPDATE) Was Deloitte’s Warning to Merrill Lynch Lacking Urgency?

– Updated to included statement from Deloitte

By now you’ve heard that Ken Lewis and former BofA CFO Joe Price are in a bit of pickle, thanks to NYAG Andy Cuomo.

Long/short is that Drew has filed civil charges claiming that these two ignored advice to disclose information about the losses at Merrill Lynch and went ahead with their plans that ended up screwing just about everyone in the entire world.


According to the complaint, Deloitte was right in the middle of the action back in December of ’08 as the auditor of ML and from the sounds of it, they kinda-sorta encouraged ML’s counsel to disclose the losses saying:

given the losses through what it looks like will be November when it closes, given the fact that you have another couple of billion of dollars coming down the road in goodwill impairment, we believe it’s prudent that you might want to consider filing an 8K to let the shareholders, who are voting on this transaction, know about the size of the losses to date

Okay, so “prudent that you might want to consider” sounds like a “you can disclose the losses if you want to but we’re not making a BFD out of this” but Andy’s complaint sure presents it as a legit warning. We’re not saying that Thomas Graham, the Deloitte partner on Merrill, needed to be hyperventilating while telling ML’s Chief Accounting Officer David Moser that they “might want to consider” the disclosure but Moser was worried enough to tell in-house counsel about it.

Maybe Moser didn’t bring it up because he knew that lawyers don’t take anything auditors say too seriously. If everyone who claims to be worried, was legitimately concerned, perhaps they should’ve considered some double exclamation point usage. Oh well; next time!

We haven’t seen a statement from Deloitte anywhere and they haven’t gotten back to us at this time. Deloitte provided us with the following statement:

Deloitte personnel have testified as part of the New York attorney general’s investigation. Some of that testimony is cited publicly in the attorney general’s complaint. Deloitte is not a party to this proceeding, and due to professional standards, we cannot comment further on confidential client matters.

At the end of the day, BofA’s own general counsel tried to tell KL what’s what and he ultimately got fired so Deloitte ends up being a small fish in this whole situation (i.e. “not a party to proceeding”). Cuomo wants to be governor for crying out loud. Voters don’t give a shit if you file civil complaints against auditors.

NYAG_Complaint