Opinion | American corporate scandals

By Junius Ho Kwan-yiu & Kacee Ting Wong

Junius Ho Kwan-yiu is a Legislative Council member and a solicitor.

Kacee Ting Wong is a barrister, part-time researcher of Shenzhen University Hong Kong and Macao Basic Law Research Center, Chairman ofChinese Dream Think Tank

In the American corporate world, four 1,000-pound gorillas are notorious for their criminal minds and sinful acts that have brought untold suffering to customers around the world. Lehman Brothers’ inherently toxic financial products, AIG’s credit default swaps (CDS), Boeing’s 737 Max crashes and the misbranding of Bextra by a subsidiary company of Pfizer have not only imposed huge financial and reputational costs on these companies, they have also dealt a fatal blow to the credibility of the relevant regulatory bodies and the legal system of the US.

A major contributing cause of the 2008 global financial tsunami was reluctance by the regulators in the US to enforce the law. American officials admit in retrospect that they had considerable legal powers to halt the malpractices and mismanagement which destabilized financial markets (Leo Goodstadt, Reluctant Regulators: How the West Created and How China Survived the Global Financial Crisis (HK: HKU Press, 2011),p.36). As a result of deregulation, AIG abused the financial derivatives industry by writing US$440 billion worth of CDS (Richard Duncan, The Corruption of Capitalism (HK: CLSA Books, 2009),p.156). Lehman Brothers also introduced novel but risky financial products to bundle mortgages into traded securities called Collateral Debt Obligations (CDOs).

In fact, CDOs and CDSs are inherently toxic financial products. Lax regulation was not the sole contributing cause of the 2008 crisis. Awarding CDOs top credit rating, irresponsible credit rating agencies made misstatements and helped flood the global markets with extremely risky CDOs. Finally, the financial crisis broke out in 2008. After the collapse of Lehman Brothers in September 2008, global financial markets immediately plummeted. Some Lehman mini-bond holders in Hong Kong were also drawn into the vortex of this global financial crisis. To save other big financial institutions, the Obama administration took an unprecedented step by introducing the Troubled Asset Relief Program to buy up mortgage-backed securities (Michael Burleigh, The Best of Times, The Worst of Times (London: Macmillan, 2017),p.29).

In order to stabilize the financial market and save the American economy, the Obama administration decided to nationalize AIG at such a critical juncture. Using public funds to prop up AIG has caused a heated debate on the moral hazards of endorsing an alleged Ponzi scheme. Merely imposing fines on major credit rating agencies has also attracted public criticism. It seems that the law in the books and the law in action in relation to the American corporate world are not always the same.

The next 1,000-pound gorilla under our microscope is Boeing. Falling victim to corporate greed, Boeing tried to save the production costs of 737 Max aircraft by using a defective flight control system. It later emerged that both 737 Max crashes in 2019 were triggered by design flaws, in particular the use of flight control software known as MCAS. Three hundred and forty-six passengers lost their lives in these two fatal crashes. Both Federal Flight Administration (FAA) and Boeing found themselves on a road to reputational disaster. The FAA is also condemned because its managers delegated most of the safety assessments directly to the manufacturers, to help meet tight production schedules (David Dayen, Monopolized: Life in the Age of Corporate Power (NY: The New Press, 2020),p.38).

Unlike the above lax assessments, the FAA appears to have adopted an excessively strict safety assessment to test the airworthiness of ARJ21 which is manufactured by the Commercial Aircraft Corporation of China (COMAC). In fact, the ARJ21 has been in service since 2015. Late last year, COMAC delivered the ARJ21 to its first international customer, Indonesian airline TransNusa. It is highly likely that the FAA will scrutinize C-919 with the utmost jealousy.

As a result of the above fatal crashes, Boeing faced a criminal conspiracy charge in the US. But in 2021, Boeing and the Department of Justice reached a settlement, requiring the former to admit to conducting that would support a charge of conspiracy to defraud the US. The government also hit Boeing with a criminal fine of US$243.6 million and placed it under Justice Department’s supervision for a period of three years (M. Mekelburg & G. Farrell, Boeing- DOJ ‘Sweetheart Deal’ Decried by Victim’s Wife, available at https//news.bloomberglow.com/esg/boeing-pleads-not-guilty-in-fraud-case-737-max-crashes).

Some family members of the deceased could not repress their anger. Finally, their anger has bubbled to the surface and they are trying to re-open the settlement. They complain that the settlement has unjustly shielded Boeing from a public trial. They also want the maximum penalty to be imposed against Boeing and they want any immunity from prosecution that senior officials at Boeing received to be lifted. It is worth noting that the above settlement has cast serious discredit on the legal system of the US.

The final 1,000-pound gorilla is Pfizer, which is a drug manufacturer tainted with scandals and lawsuits. From 1986 to 2020, Pfizer was adversely affected by six scandals. For example, Pfizer’s subsidiary company pleaded guilty to a felony violation of the Food, Drug and Cosmetic Act for misbranding Bextra with the intent to defraud or mislead. Bextra is an anti-inflammatory drug that Pfizer pulled from the market in 2005.

In 2018, Pfizer reached an agreement with thousands of customers of its depo-testosterone drug after they sued it for increasing the likelihood of numerous issues, including heart attack (Corporate Watch, Pfizer: Six Scandals to remember, 22/4/2021, available at https//corporatewatch.org/pfizer-six-scandals-to-remember/). Recently, the scandal surrounding Project Veritas’s video and its allegation against the unscrupulous research conducted by Pfizer has raised another storm of controversy in the pharmaceutical world.

Although Pfizer has denied conducting gain of function or directed evolution research, and although Project Veritas is a discredited right-wing organization, we still believe that there should be more scrutiny over what big pharmaceutical companies do. Pfizer should not be allowed to hold the regulatory bodies and law enforcement agencies hostage to its unscrupulous practice. Most importantly, public health should be safeguarded.

The views do not necessarily reflect those of DotDotNews.