James B. Nicholson, Trustee vs. Harmon

David C. Farmer, Successor-Trustee vs. Harmon

(Formerly Woo vs. Harmon & Nicholson vs. Harmon)

CV05-00030 DAE KSC

U.S. District Court For the District of Hawaii

Judges: David A. Ezra; Kevin S. Chang

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DEFENDANT’S MOTIONS FOR ABATEMENT, DAMAGES, ETC.

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DEFENDANT’S WITNESS

CARL C. ICAHN

Address to be determined.

From Wikipedia:

Carl Celian Icahn (born February 16, 1936) is an Jewish-American billionaire financier/corporate raider/private equity investor.

Icahn, raised in Queens, New York City, earned a reputation as a corporate raider after his hostile takeover of TWA in 1985. He was educated at Princeton University (A.B., Philosophy, 1957) and New York University School of Medicine, where he dropped out before graduation.

Carl Icahn, like many others in the 1980s, made his billionaire fortune in large part because of financier Michael Milken's junk bonds. After the junk bond and overall market bust in the early 1990s, Carl Icahn played a lower profile role in the business world, preferring to be less public in his dealings.

Icahn is a director of Blockbuster Inc, and the chairman of Imclone, American Real Estate Partners LP, XO Communications Inc, WestPoint Home Inc. and American Railcar. Also he is a beneficial owner of Adventrx Pharmaceuticals Inc, Hollywood Entertainment, National Energy Group Inc, Vector Group Ltd and has significant holdings in Time Warner Inc. He has casino interests in Las Vegas, Nevada, including the Stratosphere, Arizona Charlie's Boulder and Arizona Charlie's Decatur, which are operated through American Entertainment Properties, a subsidiary of Icahn's major company American Real Estate Partners. Icahn has also tried to take over Marvel Comics.

In 2004, Icahn purchased a large block of stock in a pharmaceutical concern, Mylan Laboratories, after Mylan had announced a deal to acquire another company in that market, King Phamaceuticals, of Bristol, Tennessee. Icahn threatened a proxy fight over the acquisition, saying that the contract required Mylan to over-pay. He also contended that Mylan's chief executive, Robert J. Coury was significantly overcompensated and that Mylan's corporate governance was otherwise badly flawed.

In early 2005, Mylan gave up its efforts to acquire King, but management said this was a result of its ongoing monitoring of relevant facts, not due to pressure from Mr. Icahn.

In 2006 Icahn sold his stake in KT&G (Korea Tobacco & Ginseng) for a significant quick one year profit.

Icahn Stadium on Randalls Island in New York City is named after him, as is the Icahn Science Center and Icahn Scholar Program at Choate Rosemary Hall, a top tier New England prep school. This organization pays for tuition, room and board, books, and supplies for 10 students every year for four years (freshman-senior), an expense that adds up to about 160,000 dollars per student.

Icahn made a substantial donation to his alma mater Princeton University to fund a genomics laboratory which bears his name.

At the moment Icahn is also a major shareholder of Time Warner owning about 3.3% of the company valued at billions of dollars. He has been actively attempting to influence the direction of Time Warner, often in conflict with its Chief Executive, Richard Parsons. Although Time Warner recently sold 5% of its AOL division, Icahn has been pressing for additional action to increase shareholder value.

On February 7, 2006, a group led by Icahn and Lazard Frères CEO Bruce Wasserstein unveiled a 343-page proposal calling for the breakup of Time Warner into four companies and stock buybacks totaling approximately $20 billion.

On February 17, 2006, the Icahn-led group agreed with Time Warner to not contest the re-election of TW's slate of board members at the 2006 shareholders meeting. In exchange for the Icahn group's cooperation, Time Warner will buy back up $20 billion of stock, nominate more independent members to the board of directors, cut $1 billion of costs by 2007, and continue discussions with the Icahn group over their proposal, particularly on the future of Time Warner Cable.

In August 2006, he bought stock in the video game publisher Take Two Interactive.

In January 2007, he purchased a 9.2% stake in Telik, Inc. (Nasdaq: TELK), a biotech company engaged in cancer research, because he believed its shares were undervalued.

On January 16, 2007 it was disclosed in a Securities and Exchange Commission filing that Mr. Icahn is the beneficial owner of 14.57%, or 6.1 million shares, of WCI Communities Inc. (NYSE: WCI). In the filing Mr. Icahn indicated that he intends to contact WCI to discuss how to "unlock the inherent value" of its shares.

On January 30, Motorola said it received notice that Icahn owns about 33.5 million shares, representing a 1.39% interest in the company and pressed for a seat on its board.

http://en.wikipedia.org/wiki/Carl_Icahn

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Forbes 400 Richest in America

Forbes magazine, [For the year 2000]

The yearly ranking of the wealthiest Americans. Jews represent 2.5% of the American population, yet are AT LEAST 33% of the richest 75 Americans. (Start 'nose-counting' after that yourself, because a high percentage continues). Among the richest 75 Americans are the following Jewish businessmen: 2) Lawrence Ellison, 5) Gordon Moore, 7) Steven Ballmer, 13) Michael Dell, 14) Sumner Redstone, 18) Harry Samueli, 41) Thomas Pritzker, 42) Robert Pritzker, 43) Eli Broad, 44) George Soros, 44) Samuel Newhouse, 44) Donald Newhouse, 51) Alfred Lerner, 53) Carl Icahn, 56) Maurice Greenberg, 59) Edgar Bronfman, 61) Marvin Davis, 61) Michael Bloomberg, 61) Walter Annenberg, 66) Leonard Lauder, 70) Ronald Perelman, 70) David Geffen, 73) Gary Winnick, 73) Bernard Marcus, 73) Ronald Lauder....

www.jewishtribalreview.org/jpower.htm

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SAN JOSÉ STATE UNIVERSITY
ECONOMICS DEPARTMENT
Thayer Watkins

Notes on: The Predators' Ball by Connie Bruck

Carl Icahn

Carl Icahn grew up in Queens, New York City and went to Princeton to study philosophy. At his mother's urging he attended medical school but hated it and dropped out after two years and joined the Army. In 1961, after his stint in the Army his uncle got him a job as a trainee stockbroker with Dreyfus and Company. After he acquired some experience in stock trading he decided he should have a specialty and he became an options broker with Tessel Patrick and Company. In 1964 Icahn and his fellow options brokers moved to another broker, Gruntal, and created its options department. He started a successful newsletter called The Mid-Week Options Report.

In 1967 Icahn decided to start his own discount brokerage and borrowed $400,000 from his uncle to buy a seat on the New York Stock Exchange. Since his army days Icahn had been a committed gambler. For recreation he gambled, and at work he gambled in terms of options. He became an arbitrageur mixing options with classical arbritrage operations, something that was then unusual.

About this time Icahn became notorious for being tight-fisted. He was also "notorious for his sudden rages, and for the abuse of employees, minority partners, outside lawyers." Icahn invested in REIT's (Real Estate Investment Trusts) at a time their prices were severely depressed.

He gained control of one, Baird and Warner, with assets of $30 million. In 1979 Icahn won a proxy fight for Tappan, the manufacturer of stoves. He used his position on the board directors to force the sale of Tappan to a Swedish firm. Icahn made about $3 million on that venture. Icahn decided to attempt more proxy fights to sell off undervalued companies. These started as attempts to gain control companies, but he soon learned that unsuccessful proxy fights could also be profitable. Worried management groups were often willing to pay a premium for stock held by Icahn.

This "buyback at a premium" came to be known as "greenmail." Hammermill Paper Company became Icahn's next target. The Hammermill management instituted antitakeover measures and fought back by conducting their own proxy campaign and suing Icahn for security law violations and fraud. Icahn lost the proxy contest and the company was not going to pay him greenmail. He negotiated a settlement that protected the management against future raids.After a year Hammermill stock rose enough that Icahn could sell his ten percent ownership at a profit of $9 million.

But Icahn was constrained by his limited amount of capital. He could not buy out the companies he was investing in and their management knew it. They could call his bluff. He needed additional sources of financing. In 1982 Icahn, with the backing of several financiers, attempted a raid on the retailer Marshall Fields. Icahn had developed a reputation for unscrupulousness and Marshall Fields fought back not only with the usual allegations of securities rules violation but also it claimed violation of the RICO statute (Racketeering Influenced and Corrupt Organizations Act), a law created to deal with organized crime. Marshall Fields charged that Icahn was using funds derived from a "pattern of racketeering." This legal ploy did not stop Icahn and Marshall Fields merged with a British retailer.

After the Marshall Fields venture Icahn had about $100 million to use for raiding. He bought into Anchor Hocking, American Can, and Owens-Illinois and was bought out at a premium by management about a week after he made his purchases. His attempted raid on Dan River resulted in his gaining more of an image of an ogre when the people of Danville, Virginia came to the aid of Dan River with their retirement money.

Icahn did gain control of a railcar leasing company, ACF using $410 million which he raised through bank loans and the sale of a division of ACF. Icahn had shifted his strategy from greenmail to acquisition and dismemberment of corporations.

About this time Drexel Burnham contacted Icahn and offered to raise funds for him. With this backing Icahn made an $8.1 billion tender offer for Phillips Petroleum. Half of this was to be paid in cash and half in securities. Icahn limited Drexel Burnham's share of the cash financing to $1.5 billion and Michael Milken raised this in 48 hours. Icahn did not succeed in acquiring Phillips and ended taking around $25 million from Phillips as compensation of "expenses." He also made a profit on his Phillips stock acquisitions.

Icahn noticed that the airline TWA, although just breaking even in terms of profit, had $200 million in depreciation so its cash flow was hefty. In 1985 Icahn started acquiring stock in TWA. Drexel Burnham discouraged him from this takeover attempt because it had done financing for TWA the previous year and had a policy of not helping takeover attempt against its own customers. Icahn was not dissuaded, and he increased his share of TWA stock ownership to 20 percent.

TWA mobilized against Icahn. The company filed numerous suits seeking injunctions. The labor unions conducted an anti-Icahn campaign. Both the union and management lobbied Congress against him.

The legal moves were blocked and TWA looked for a white knight. They thought they had found one in Frank Lorenzo of Texas Air. Lorenzo had started his career as a financial analyst for TWA and then took control of Texas International Airlines in 1972.

Lorenzo had used Drexel Burnham to finance a leveraged buyout of Texas Air and Leon Black of Drexel Burnham represented him in the negotiations with Icahn. Black worked out a deal with Icahn that would have paid Icahn $95 million and given control of TWA to Lorenzo. Lorenzo tried to shave the profit Icahn was going to get by about $7 million and the deal fell through. Icahn ended up getting control.

The unions at TWA were not in favor of Lorenzo getting control anyway because when Lorenzo got control of Continental he abrogated union contracts and cut wages by 50 percent. To the unions, Carl Icahn was more of a white knight than Frank Lorenzo. Icahn negotiated a deal with the unions which involved concessions on the unions' part along with profit-sharing and stock ownership. This enabled Icahn to effectively match Lorenzo's offer for TWA.

Actually the sequence of bidding went like this. Icahn offered $18 per share. Lorenzo offered $23 and Icahn preferred to sell at that level. But after the breakdown of the negotiation with Lorenzo and Icahn emergence at a white knight for the unions, Icahn bid $24. Lorenzo then offered $26. Because of the bitterness toward Lorenzo felt by the employees, the Board of Directors of TWA would choose any offer that was reasonably close. The unions wanted Icahn to raise his offer to $25 but he held fixed at $24. Nevertheless the Board did accept Icahn's offer over that of Lorenzo. Icahn found himself in charge of a major airline.

www.sjsu.edu/faculty/watkins/bruck.htm

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NEW DISCOVERY (07-08-08): E-mail regarding witness Judge Susan Oki Mollway:

Check out James B. Nicholson, Trustee vs. Harmon - Witness Judge Susan Oki Mollway

Tuesday, July 8, 2008 4:43 PM

From: Mutant Ninja Cats

Re:

James B. Nicholson, Trustee vs. Harmon - Witness Judge Susan Oki Mollway

FYI: Susan Oki, Echi Oki, Dan Mollway, Airline Industry, SEC, and the Broken Trust Asian Pacific Bamboo Legacy in collusion with AIPAC Political influence in the powerful influential Defense Appropriation Committee members {Ted Stevens and Duke Cunningham} under Hawaii U.S. Senator Daniel Inouye's leadership...... and the stealth Political, Economic, and Socialized intents for the pending AKAKA BILL in Congress, documented, again, under "A Confederacy of Dunces" {Forbes}.

Hey CB....this one is the ultimate "insiders" in Hawaii regulatory Government for the Broken Trust cabals linked to the Hawaii Legislature members including their own Federal Reps in Washington protecting their Hawaiian Hui "inside" investors from Southeast Asia to Wall Street:

I talked with the State Ethic's Commissioner / Director, Dan Mollway....Ms. Susan Oki's husband... about the BIG conflicts of interests involving our case against the State DLNR, The Ombudsman Office Director, The DCCA Rico "Investigations" with huge Political cover-ups involving the ANZAI's and the Hawaii Judicial system protecting their own regulatory local hui investors linked to the Bishop Estate Trustees.

Dan Mollway was involved with the "separate" Investigations involving the DLNR Bureau of Conveyance Public land records being ILLEGALLY manipulated and tampered for "Controlled Business" practices by the private sector {Title Guarantee Company employees with Realtors linked to Hoiku Consultant private computers being placed strategically in Public Office Government Buildings linked to the Hawaii Legislature members and the KSBE investments under Headmaster Colbert Matsumoto}.

He claimed that the State Ethics Department was still in the process of their own "separate" investigations {with vague public follow-ups since last year} while the State of Hawaii Attorney General's office conducted their own internal "investigations" in conjunction with a Third Investigations by the Hawaii Legislature members with their Union supported employees!

This again, is the same as a California PYRO MANIAC investigating his own blazing Wild Fire, while creating numerous distracted small fires around the BIG MAIN BON-FIRE, to attention away from his malicious and well calculated deeds!

The gas can {State of Hawaii DLNR Public Forgery Document Executive Order 3117 with a false Public misleading Official GAO Survey Map} with the match {The original suppressed DLNR Legal Access documents} and the remaining evidence with charred ruins {The Hawaiian Airline Pilot's family Bankruptcy proceedings implicating the KSBE and U.S. Trustees mishandling and suppressing the FRAUD} is all their for the "Investigators" conducted by the same Hawaii Buzzards and Vultures linked to the BROKEN TRUST Hawaii Legislature members, again, conducting their own Public Relation separate "investigations" for their Union memberships obtaining bribery gifts and favors {Oriental customs?}; The Hawaii State Ethics Director, linked to the Bamboo network Hawaii Judiciary system Huis with their own separate Public Relation damage control "investigations" to nowhere under the Hawaii AG's Office....promoting a Sovereign Hawaiian Bill, based on Illegal Political Constructive Fraud in Washington {1993 Simple Federal Apology Resolution to Hawaii by Senators Daniel Inouye and Akaka} while ignoring blatant Public Fraud and Political Corruption with OBSTRUCTION OF JUSTICE with HUGE CONFLICTS OF INTERESTS for: "SOCIAL EQUALITY AND POLITICAL JUSTICE FOR ALL" in Washington......

DOESN'T GET MUCH BETTER THAN THIS while Congress protects their own vested interests under the Political Department of Injustice cabals while helping spread American Democracy and American Values in the controversial Middle East and around the World!

Some interesting bit of side notes involving Ms. Susan Oki and her father....a former member of the famed 442 U.S. Military Regiment: My father, a former World War 11 Combat photographer in the South Pacific theatre, was married to a local Japanese during the War. He was a distant Political acquaintance and supporter for Jack Burns in Kailua, Oahu. They both belonged to the Kailua Lions Club and were both members of the private Lanikai Mid-Pacific Country Club....mostly all haole members after the War years.

My father was involved in a very fraudulent Hawaii land purchase and sale during the 1950s involving a corrupt Hawaii land surveyor and a fellow Irishman linked to the Hawaii Judges family members. After he relocated to San Francisco in the early 1960s, he retained a Hawaii attorney whom I believe was none other than Echi Oki.....from Honolulu, linked to the famed 442 Hawaii Military Brigade members whom he always supported due to the persecution of the local Hawaii Japanese community after Pearl Harbor.

Echi Oki, again, had close political links vis-a-vis their Military Service to Dan Inouye and their tight knit Hawaii 442 hui cabals.....prior and after the 1954 Hawaii Legislature Revolution. My father lost the Court case, despite the SELLER testifying in favor of my fathers allegations...... with huge conflicts of interests since the Judge was related to the Hawaii Judge {Taveras}.

Another side Note with the Airline Industry: I was personally involved with the earlier Bankruptcy proceedings with Frontier Airlines in Denver {1986} which later involved Drexel Burnham Wall Street investors linked to Frank Lorenzo and Carl Ichan in New York. Like Mr. Rodney Stich, the FAA investigator making allegations against United Airlines in Denver, I was singled out with several others for exposing blatant FAA rules and blatant Public Safety violations involving massive fraud and corruption benefiting short-cutting - Airline cost saving procedures...comprising massive Public Safety cover-ups and FAA regulatory with damage control omitted issues involving the new non-unionized, young and ignorant work force.

This all began with the across the board firings for the FAA Air Traffic Controllers soon after the Reagan - Bush Sr Tenure came into Office in 1981. The massive Airline De-regulations in Washington vis-a-vis Wall Stree profiteers, {i.e. - Michael Milken, Marc Rich, Ivan Boesky} during the roaring unregulated 1980s which became famous with the Movies: WALL STREET {Michael Douglas} and "BARBARIANS AT THE GATE".

AIPAC'S Norman Brownstein, based in Downtown Denver, vis-a-vis my former Brownstein political mole "girlfriend" , New York attorney Lisa Holstein, was responsible for helping Lorenzo with the Texas Continental Airline gang members to get out of their Prime gate and exclusive lounge commitments, including a faulty Automated Baggage system, involving more massive fraud and cover-ups at the new Denver International Airport were allowed to quietly relocate back to their Houston based "Texas Air Corp" headquarters.

In 1993, Clinton denied Frank Lorenzo, with his New York Attorney wife with Chase Manhattan Bank, as well as their Texas Air Corps - Colorado Resort land investors in Aspen & Vail {Phillip Winn Group}, to continue manipulating the SEC within the confines of the "insiders" under the lucrative "De-Regulated Airline Industry" mergers using Union Pension plans for lucrative leveraged acquisitions....compromising Public Safety and FAA violations with massive cover-ups in Washington.

Again, like former FAA investigator, Rodney Stich, doing his job, I became another Politcial liability, which is the former "inside" Dept of Justice / CIA lawyer, Norman Phillip Brownstein's expertise specialized job as Mr. Fix It at DIA; Protecting SEC Billionaire Fugitive's such as Marc Rich and HUD Director Phil Winn, while sheltering Drug Traffic cabals with Florida's Jack Devoe...for helping AIPAC's Political "cause" in Washington DC into vested SECURITY interests in the secular Middle East.....of course....always using OPM: The defrauded & obliviouos American Public Tax Payers left holding the bag on Wall Street to Main Street.

Brownstein's young, former single AIPAC New York mole attorney, Ms. Lisa Holstein, like others linked to AIPAC and David Steiner, as well as former CIA - U.S. federal prosecutor - Hawaii Public Safety Director, John Peyton, are reported deceased in New York and remote Africa?

The Rocky Mountain High - SILVERADO DNC Political Convention in Denver, Colorado, moving the Public cost over-run to a larger media exposure event with INVESCO Stadium {Bronco Pro Football Stadium...who are clients of NORM BROWNSTEIN, JACK HYATT, AND STEVE FARBER, now joined by former GOP Denver University CABALS - former Colorado RNC Chairman, Commercial Real Estate Investor and Resigned Department of Veterans Affair Director - James "De Oppressor Libre" Nicholson, linked to former Colorado RNC Chair, for convicted Swiss Ambassador - HUD Director - Phil Winn {DU Professor} with former DU Secretary of Interior Gale {CREA} Norton, as well as the latest new GOP University of Colorado connections to former U.S. Senator / UC President Hank Brown....involved in the "E Pluribus Unum" Wall Street article related to: THE 1993 Simple FEDERAL APOLOGY RESOLUTION TO HAWAII under Clinton with Political Constructive FRAUD and Public cover-up intents for the future Public subsidized AKAKA BILL in Congress....pending in Washington since 2000, after the U.S. Supreme Court decision over ruling the Hawaii Political Judicial system hidden under the Political Ninth District Circuit Court of Appeals, involving 'RICE V. CAYETANO' {Office of Hawaiian Affairs}.

Hope this "inside" information and insights can help you!

- little ninja cats with nonprofit coconut crab club

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February 28, 2006

Hawaii Fight Heats Up

By Ted Reed, TheStreet.com Staff Reporter

http://www.thestreet.com/stocks/transportation/10270608.html

Hawaiian Holdings (HA:Amex) unit Hawaiian Airlines and privately held Aloha Airlines have competed for five decades, so it can hardly be said that they're strangers to the concept.

But there is clearly a new intensity to the battle for supremacy in the skies over Hawaii. Air travel to the island chain reached an all-time high last year, and it shows no signs of slowing.

A new entrant, scrappy Mesa Air Group (MESA:Nasdaq) , says it will start offering inter-island service this spring, prompting a lawsuit by Hawaiian. Another new competitor, US Airways Group (LCC:NYSE) unit US Airways, just added two daily round-trip flights between the mainland and Hawaii, and it plans 21 more weekly round-trip flights in March.

Routes to Hawaii are already crowded, with nearly 20 daily flights from Los Angeles alone. Nevertheless, US Airways says its new Hawaii flights exceeded revenue forecasts in their first two months. Meanwhile, investors including Carl Icahn are surveying the landscape.

The short explanation for the increased focus on Hawaiian air service is that the same two events that reshaped mainland aviation also heavily affected the 50th state. The Sept. 11, 2001, terrorist attacks bolstered Hawaii's image as a vacation destination that's safe yet exotic -- "Peoria with palm trees," as airline consultant Mike Boyd put it. Plus, the widespread use of bankruptcy court to restructure airline costs extended to Hawaii.

Old, Yet New

In the past nine months, both Hawaiian and Aloha have emerged from bankruptcy with better cost structures.

"There's been a resurgence of travel to Hawaii because people view it as a safe holiday, and Aloha and Hawaiian have restructured," said Mesa CEO Jon Ornstein in an interview. "Both are well-known brands, among the oldest airlines operating. But they have different strengths. Hawaiian came through bankruptcy with a stronger balance sheet, while Aloha has a more competitive cost structure."

Aloha, which will celebrate its 60th anniversary in July, emerged from Chapter 11 earlier this month. It spent 17 months in court cutting costs, primarily labor costs, by $75 million, and jettisoning about $250 million in debt...

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December 1, 2002

Enron, One Year Later

By Dale Steinreich

One year ago, the Enron Corporation filed for Chapter 11 bankruptcy protection. Little did anyone know what was to follow: bankruptcy filings by Kmart (Jan. 22), Global Crossing (Jan. 28), Adelphia (June 25), and finally WorldCom (July 21), the largest bankruptcy in U.S. history.

This is not to mention the deluge of other corporate scandals including Bristol-Myers (under investigation for inflating revenues by $1 billion), Qwest (using swaps to inflate revenue by $950 million), and Xerox (forced June 28 to restate $6 billion in revenue across 5 years).

Worse were stories about outrageous perks going to top executives, even apart from the $33 million Enron CFO Andrew Fastow reaped from Enron's now-infamous partnership deals. Global Crossing CEO Robert Annunziata received a $10 million signing bonus, $4 million in stock options, and a guaranteed yearly bonus of $500,000. After remaining on the job for just a little more than a year, he received another $2 million just for walking away. Global Crossing was a telecom company that never made a profit and today is the 5th-largest bankruptcy in U.S. history.

The recent graft didn't affect just New Economy companies such as E*Trade, which suffered losses of $241.5 million in 2001 while its CEO Chris Cotsakos pocketed $4.9 million in salary plus bonus, a $15 million forgiven loan, $29 million in restricted stock, and over $9 million in retirement benefits. Old Economy firms such as the now-bankrupt Kmart were also affected. For running Kmart into the ground, CEO Charles Conway picked up a hefty $13.2 million and a $4 million bonus just for leaving.

After having run a home-improvement and then a supermarket chain into the ground, Kmart welcomed Mark Schwartz with open arms and made him its President and COO. He cashed out with almost $11 million. Kmart has laid off 22,000 employees and closed almost 300 stores this year.

Many pundits have attempted to diagnose why such a wave of scandals and record bankruptcies occurred when it did. A typical effort was a cover story in the June 24, 2002 issue of Fortune entitled "System Failure." Despite the promising title, the seven suggestions for reform offered by Fortune's writers lead nowhere. The suggested reforms included having auditors grade the quality of a company's earnings, reducing CEO pay, and making fund managers exercise more power in ownership.

These suggestions fail to address underlying causes. Auditing grades would be subject to "grade inflation." CEO pay seems excessive, but not because the market in managerial talent is not sufficiently regulated (more on that below). Although 75 fund managers control about 44% of the market, it's absurd to expect them to re-make Corporate America. First, fund managers have a short-term perspective because their job is to make bets on firms and beat the market. To charge them with the farsighted responsibility for corporate governance is to transform them into something they're not and never will be. Additionally, large corporations are often the clients of the funds holding their shares. Not many fund managers want to cross large clients.

Perhaps the largest of the red herrings is the debate over employee options expensing. Getting exercised over the issue are some impressive names, including Warren Buffett and Nobel-winning finance professor Robert Merton. Merton et al. focus on the pedantic issues of the expense vs. status quo debate. Should options be expensed? Yes, but this question begs another as to why options have become such a large portion of current top-executive compensation.

The real macro focus (apart from the Fed) should be the "agency problem," the problem of management not having the incentive to efficiently use stockholder funds. Agency problems definitely played a major role in recent scandals, especially given that the wave of corruption was almost completely isolated to corporations, not proprietorships and partnerships. Business per se in America hasn't been shown to be corrupt.

The agency story begins in the 1960s, after the U.S. economy entered a long postwar expansion. With Europe and Asia's economies being rebuilt after World War II, American corporations rose to prominence in the world with relatively few international competitors. This ascendancy made agency problems in American companies conspicuous. While some managers ran companies in owners' interests, maximizing production and shareholder returns, others used shareholder funds to buy themselves gold desks, frequent and unnecessary junkets to meetings in warm climes, and secretaries who looked like supermodels but could only type five words per minute.

Takeover investors saw an economic gain to be made in booting the managerial frat boys who were living it up at shareholder expense. The result was the Saturday Night Special, a quick takeover that (according to some sources) got its name from deals where bidding for stock shares could begin late in the week with a new board and management team in place at the target company by Monday morning.

The prospect of getting a swift boot didn't sit well with the old corporate guard, so it lobbied Congress to pass the Williams Act of 1968. Williams required an investor buying more than 5% of a target firm's shares to file a statement 13(d) with the SEC within 10 days, disclose the takeover investor's identity, the source(s) of funds financing the takeover, and what the takeover investor's intentions were with the company (control, liquidation, or passive investing). Also, tender offers had to be held open for at least 20 trading days. Williams ended up dramatically increasing the premium takeover bidders had to pay for shares of a target company and hence reduced the economic gains of takeovers.

With Williams in place, all was peaceful at the corporate heights until the early 1980s when investment banker Michael Milken ignited the market in high-yield bonds (derided by some as "junk bonds"). The bonds provided badly needed funds to new companies untested by the market, becoming controversial when they were used to revive hostile takeovers.

Unlike the 1960s takeovers which precipitated Williams (where mostly large, well-funded firms pursued smaller targets), Milken's bond deals allowed small firms to pursue large targets. With Milken's help, Carl Icahn pursued Phillips Petroleum and Henry Kravis captured RJR Nabisco....

Dale Steinreich, Ph.D., is Assistant Professor of Economics and Finance at Southwest Baptist University and an adjunct scholar of the Ludwig von Mises Institute. Rod Oglesby, Ph.D, CPA, is Professor of Accounting at the Breech School of Business at Drury University.

www.mises.org/story/1104

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Carl Icahn is expected to testify regarding his business, professional, political and personal relationships with Al Hoffman, Jr., Al Hoffman, Jack Abramoff, Linda Lingle, Kamehameha Schools/Bishop Estate, Henry Paulson, Goldman Sachs, Robert Rubin, Citigroup, St. Paul Travelers, Prudential, PricewaterhouseCoopers, Mark McConaghy, WCI Communities, Steve Case, AOL Time-Warner, Tesoro Petroleum, Faye Kurren, Gale Norton, Donald Hodel, Carol Muranaka, Norm Brownstein, The Nature Conservancy, Tyco International, Dennis Kozlowski, Mark Schwarz, Michael Milken, The Chubb Group, Jeb Bush, Neil Bush, George W. Bush, Harken Energy, Phillips Petroleum, Chevron-Texaco, Aloha Petroleum, James Ahloy, Richard Rainwater, Lee Bass, Tom DeLay, Duke Cunningham, Salomon Smith Barney, John Sperling, Imclone Systems, Merrill Lynch, James B. Nicholson, Jim Nicholson, TWA, Hawaiian Airlines, Lyn Anzai, Joshua Gotbaum, Marsh & McLennan, Kroll Associates, Enron, Marshall Fields Inc., Ted Fields, Dave Thomas, Thomas W. Ryan, Leon Black, Apollo Advisors, VMS Realty, Liberty House, Carol Muranaka, Peter Savio, James Duca, Robert Katz, Mark Bennett, John Marshall, William McCorriston, Judith Neustadter Fuqua, Guido Giacometti, Nathan Aipa, Colleen Wong, Stanley Hong, Sukamto Sia, Judge Harold Shintaku, Henry Kravis, Kohlberg Kravis Roberts & Co., Steven Guttman, David Banmiller, David C. Farmer, and others to be named upon discovery.