Comes now the case of Charles Conway, former president of Kmart, ordered to pay some $10 million in an SEC civil action on the premise that he misled investors on the eve of KMart's Chapter 11. The gravaman (I love that word) seems to be that he didn't tell the analysts on a conference call that he'd slowed down payments to save money.
I've got mixed feelings about this one. I certainly feel for the vendors who were pretty much stuck: the sparrows can't bring down the woolly mammoth, and why would they want to? Chances are Kmart was their only (or their most important) customer.
On the other hand--misled? I wonder. Certainly every vendor knew about the policy, no later than the time he missed his first payment. It must have been in the trade press. And any investment analyst worth his salt is going to know all about it, phone call or no.
Moreover if I read this right, Conway was the turnaround artist, brought in to save the day. Isn't this what turnaround artists do? Reading the self-promotional utterancess of George Cloutier, the self-described "tough-love" business adviser, I find that a key rule is " Never Pay Your Vendors On Time." He says:
We tell our vendors, if you’re asking for 15 days, forget it. We’re going to pay you in 45 days. You don’t want the work? Tell me, and I’ll find somebody else. You have to work on stretching your payables because every dollar you get in extended payables is an interest-free loan. ...He might have added: ...and a shot at a $10 million disgorgement order.
Afterthought: I think one reason this Cloutier guy gets up my nose is the posturing as the professional tough guy. Making hard decisions is one thing; bragging about it is another. My memory is that these guys who brag about the the sharpness of their alligator teeth are often just exactly the ones who wind up as a pair of cowboy boots. Cf. this guy, or this guy.
Afterthought: nine months it took the judge to come up with his opinion. Yes, I assume he had other demands on his time, but leaving Conway's life in suspension like this appears to be a kind of penalty all its own.