Dick Grasso chosen as Stock Patrol's "Loser of the Year", and I concur.
STOCK PATROL'S SECOND ANNUAL LIST OF WALL STREET LOSERS AND SINNERS
December 31, 2003
As the year 2003 began we all breathed a sigh of nervous relief. After all, Wall Street had already yielded enough scandals to last a decade. No doubt, the repercussions would remain far longer, but we were due some relief from the endless chain of scandals and schemes. The names Enron and WorldCom no longer brought to mind giant multi-national public companies. They had become bywords for an era of corporate excess and fraud, Dennis Kowlowski, the Rigas family, Samuel Waksal and Jack Grubman had become the latest poster boys for Wall Street greed.
As we soon discovered, however, there were new revelations on the horizon – more icons set to tumble. In the words of Yogi Berra, “it ain’t over ‘til it’s over.” And it ain’t over yet. Once again, we narrowed down the list, and came up with these “winners” among the losers and sinners of 2003.
1 - Richard Grasso.
What can you say about a man who began the year on top of the world and ended it on the bottom of the heap? Grasso’s $139.5 million pay package signaled his exit as Chairman and CEO of the New York Stock Exchange, and he’s still dodging bullets. Now the NYSE is deciding whether to sue Grasso (and the directors who agreed to pay him) and seek return of the funds. He shouldn’t have any trouble paying for his legal defense team.
Grasso’s demise focused attention on his glaring failure to regulate the NYSE, leading to a cry – which thus far has fallen on deaf ears – for the NYSE to be stripped of its regulatory functions. Case in point, during the Grasso reign NYSE specialist firms were manipulating prices at the expense of public customers.
Grasso could not have undermined the integrity of the NYSE all by himself. He had plenty of help, which brings us to our second winner of the year.
2 - The New York Stock Exchange Board of Directors.
The NYSE Board of Directors found a handy scapegoat in Dick Grasso, but how can they possibly escape blame for a mess of their own making. A Compensation Committee, appointed by the Board, and consisting of a handful of Directors, fashioned Grasso’s pay package. We would ask what they were thinking, but that might be giving too much credit to a Committee, some of whose members later conceded that they hadn’t paid too much attention to Grasso’s pay. Or anything else, it would seem.
Most of those directors will be following Grasso off of the floor and out the NYSE door. A new plan calls for them to be replaced with a panel of “independent” directors carefully selected by Interim NYSE Chief John Reed. How independent will the new Board be? None of the proposed members works for an NYSE member brokerage firm or an NYSE listed company – at least not now. But virtually all of them have been associated with NYSE members – brokerage firms or listed companies – in the recent past. As a practical matter, can they be truly independent – or will some of the new directors be making this list next year?
3 - The $1.4 Billion Settlement with Major Brokerage Firms. Let’s face it. $1.4 billion dollars is still a lot of money, unless you work for George Steinbrenner or can convince some fool in Hollywood to pay you big money for bad movies (see, for example, any film featuring Ben Affleck and JLo). You can’t even get this kind of money swallowing worms on TV.
So why does the settlement make the list? Because the brokerage firms got off cheap. Add a couple of zeros to that $1.4 billion (and then maybe add a couple more) and you can begin to get a rough idea of the amount of money the firms earned as a result of the practices that led to the settlement. Remember. A bunch of leading Wall Street brokerage houses issued phony research reports to make their investment banking clients happy. Then they got you (and me) to buy shares of those companies – all the while relying on those misleading research reports.
What brokerage firm wouldn’t take this deal – knowing that the public had been duped? The firms did not have to admit liability, kept most of their profits, and, best yet, no one went to jail. This time, $1.4 billion was a small price to pay.
Meanwhile, investors who relied on those research reports are left scratching their heads and staring at empty wallets. Why? Our next winner supplies part of that answer.
4 - State Securities Regulators
This year’s list would hardly be complete without a nod to state securities regulators, who fought so hard to expose the bogus research reports, negotiated the $1.4 billion settlement, and then sacrificed much of that good will by keeping most of the money for themselves. That’s right, after taking a high profile bow for their victory over greedy brokers, some of the state regulators decided that their share of the money would go investors, not to investors, but to fund pet state projects. Shouldn’t the money have gone directly to the people who were defrauded? Investors had been saved from greedy investment bankers, only to wind up in the hands of misguided state officials.
5 - Richard Scrushy and HealthSouth
Could it have been a mere coincidence? Five Chief Financial Officers at HealthSouth found themselves at the wrong end of a criminal defense table. Each of the five pleaded guilty to cooking the books at the healthcare giant, or similar fraudulent activities. It was institutional corruption of mammoth proportions, and authorities claim it started at the top, with HealthSouth’s founder and former CEO, Richard Scrushy. Scrushy, who now faces criminal charges in the HealthSouth scandal, was denying any involvement – back when he was answering questions, which was before he decided to exercise his Fifth Amendment rights before a Congressional Committee. Maybe he wasn’t involved. Perhaps he just was a bad a selecting qualified CFOs.
6 to 10. The Mutual Funds
Let’s face it, the mutual funds merit more than one spot – so make them numbers 6 through 10. After all, Putnam, Strong, Alliance Capital, Fred Alger, Canary Capital. We could go on with another top ten list, devoted exclusively to mutual funds, but why bother. Each deserves its own honored place on this year’s list of Losers and Sinners. We know that traders were amassing a fortune by manipulating fund prices. But investors end the year still wondering how all of the recently revealed improper mutual funds practices have affected their portfolios. Late trading. Market timing. We’re familiar with the code words, but show us the money. Las Vegas based Security Brokerage, Inc. and its majority owner Daniel Calugar made $175 million through improper trading of fund shares. That’s $175 million that could have been in investors’ portfolios, right?
While regulators are sorting out this mess – which could take much of 2004 and beyond – please explain why dozens of funds “accidentally” forgot to give commission discounts to large investors. Sounds like the same sort of coincidence that left five crooked CFOs in charge of the books at HealthSouth.
And we’re not even going to mention the archaic fee structures that allow mutual funds to rake in dollars – hard and soft – at the expense of investors.
Oops, we weren’t going to mention that one this year.
©2003 Stock Patrol.com. All rights reserved.
WE'RE BACK ON PATROL
AI
Market Data 
Markets 
