The Five Dumbest Things on Wall Street This Week

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The Five Dumbest Things on Wall Street This Week

Colin Barr

1. Dolan Doldrums

Bristol-Myers (BMY Quote) put an end to the doleful Dolan era.

CEO Peter Dolan departed Tuesday after five years atop the New York pharmaceuticals giant. A government-appointed monitor recommended Dolan be fired for possibly breaking the law in a push to shield the company's bestselling blood thinner, Plavix, from generic competition.

Bristol shares have been under heavy pressure since this summer, when the Justice Department began investigating possible antitrust infractions in a failed settlement with drugmaker Apotex of Canada. A trial in the Apotex patent dispute is set for early next year.

If Dolan left under a cloud, though, the picture seemed much brighter six years ago. That's when Dolan ascended to Bristol's executive suite as heir apparent to then-CEO Charles Heimbold.

"We are developing the next generation of leaders," Heimbold said in naming Dolan president on Jan. 20, 2000, "who will continue to build on our reputation for quality products and great performance."

But Dolan ended up building a reputation for something else altogether. He oversaw a 40% decline in the stock as Bristol-Myers stumbled from one black eye to another, many involving regulators and prosecutors.

Bristol restated revenue downward by $2.5 billion after finding evidence of so-called channel stuffing -- the sale of goods to distributors who can't sell them. It paid hundreds of millions of dollars to settle allegations it cooked its books and sought to stifle generic competition. It was ordered to improve its corporate governance.

Yet even after all that, Chairman James Robinson found room Tuesday to applaud Dolan's "unyielding commitment to our company's mission, values and purpose." The Dolan strategy, Robinson added, "has put Bristol-Myers Squibb squarely on a path toward growth and leadership for the future."

Not to mention yet another date with its lawyers.

Dumb-o-Meter score: 93. "Maybe we shouldn't have negotiated in the first place" with Apotex, Robinson conceded on a Tuesday conference call, Dow Jones reports.

To watch Colin Barr's video take of this column, click here.

2. Hurd Mentality

Hewlett-Packard (HPQ Quote) knows how to spin a nice spy yarn.

The Palo Alto, Calif., tech giant shook up its board Tuesday in a bid to snuff out an embarrassing surveillance scandal. The saga began this past spring, when venture capitalist Tom Perkins resigned his directorship in protest of Hewlett-Packard's handling of boardroom news leaks.

At first H-P downplayed the whole thing, but it now admits that it hired investigators in a leak crackdown. It concedes that private eyes snooped around directors' personal phone records without consent. It even apologizes for using "certain inappropriate techniques" in the probe.

California's attorney general sees possible criminal charges against individuals both inside and outside of H-P. The Justice Department and the Securities and Exchange Commission are investigating the company's actions. A dissident director, George Keyworth, says H-P has lost its moral compass.

"The invasion of my privacy and that of others was ill-conceived and inconsistent with H-P's values," Keyworth said Tuesday as he quit the board.

Values, schmalues, Hewlett-Packard replies. The company insists it didn't know any improprieties were taking place. What's more, it stands behind its spymaster and nonexecutive chairman, Patricia Dunn.

The investigations notwithstanding, H-P said Tuesday that Dunn will stay on as chairman through the end of the year. After that, she'll keep her board seat as CEO Mark Hurd takes over the chairman's post. And Hurd, buoyed by the stock's revival since he took over some 18 months ago for Carly Fiorina, isn't giving an inch to critics of the big brother act.

"On behalf of H-P, I apologize to Tom Perkins for the intrusion into his privacy," Hurd said in a press release Tuesday. "I thank Tom for his contributions, his principles and his help in getting H-P past this episode toward its rightful place as the envy of corporate America."

Even corporate America can't be jealous of this episode.

Dumb-o-Meter score: 91. Hurd is certainly thundering, we'll give him that.

To watch Colin Barr's video take of this column, click here.

3. Broadcom Broadside

Accounting problems have Broadcom (BRCM Quote) seeing double.

The Irvine, Calif., wireless-chip company has been caught in the cross hairs of the government's big stock-option backdating investigation. Broadcom admitted in July that it had understated compensation costs by at least $750 million over four years. But now the company is saying the problem is much, much bigger.

Broadcom's ongoing accounting review has identified "additional issues concerning equity award accounting measurement dates or the affected time periods," the company conceded last Friday. As a result, a restatement of previous costs "will be at least twice the amount previously estimated and could be substantially more," Broadcom says.

A $1.5 billion restatement is surely nothing to sneeze at. The SEC and the U.S. attorney are looking into possible securities law violations at some 100 companies. Former execs at two tech rivals -- Brocade (BRCD Quote) and Comverse (CMVT Quote) -- have been charged with securities fraud.

Yet Broadcom continues to downplay the matter. When it first started checking its books back in June, Broadcom noted "various reports raising speculation about a few corporate stock-option grants." The company assured investors that it was "working proactively and with the highest degree of integrity" to get to the bottom of the accounting-misstep mystery.

Even now, with its restatement toll reaching mammoth proportions, Broadcom is quick with the excuses. "The magnitude of the total additional noncash stock-based compensation expense," Broadcom claims, "reflects the high volatility experienced by technology stocks, including Broadcom's, during the affected period."

Not to mention some awfully poor bookkeeping.

Dumb-o-Meter score: 88. The probe is ongoing, Broadcom assures us, though "we cannot yet estimate when the effort will be completed."

To watch Colin Barr's video take of this column, click here.

4. Raines Storm

Former Fannie Mae (FNM Quote) chief Franklin Raines may soon have his day in court.

The Washington-based mortgage giant's top regulator -- James Lockhart of the Office of Federal Housing Enterprise Oversight, or OFHEO -- said this week that he expects to sue Raines and his former finance chief, Tim Howard.

Lockhart's comments come less than a month after federal prosecutors said they wouldn't pursue criminal charges against Fannie Mae itself. They left open the prospect of actions against individuals.

Fannie agreed in May to pay $400 million to end an investigation into the accounting missteps that have mired the firm in an ongoing $11 billion restatement. OFHEO and the Securities and Exchange Commission blasted Fannie for having fostered an "arrogant and unethical corporate culture."

That comment was seen as a shot across the bow of Raines and Howard, who spent years raking in huge checks as Fannie's accounting errors piled up. Before the two were forced out in December 2004, Raines engaged in an unseemly public lobbying campaign against his chief critic and Lockhart's predecessor, Armando Falcon.

Falcon was among the first to highlight Fannie's chicanery. But Raines screamed until he was blue in the face, against much evidence to the contrary, that Fannie's accounting was not only proper -- it was too sophisticated to even discuss. "The accounting standards," he advised in testimony before a 2004 House subcommittee, "are highly complex and require determinations over which experts often disagree."

The prospect of a civil suit doesn't seem likely to shake Raines, who saw May's settlement between Fannie and regulators as just another opportunity for grandstanding.

His lawyer said with some pride back then that Raines had "promised in October of 2004 that he would hold himself accountable if it was determined that Fannie Mae misapplied accounting rules."

You'll get your chance yet, Frank.

Dumb-o-Meter score: 85. Few experts would disagree with a suit against these clowns.

To watch Colin Barr's video take of this column, click here.

5. Who's Nuts

Sirius (SIRI Quote) will do anything to hog the limelight.

The New York-based satellite-radio outfit continues to clash with rival XM Satellite (XMSR Quote). XM's shares are down 51% this year and Sirius' are off 39%, as investors wonder whether the cash-burning broadcasters will ever turn an actual profit. But the decline has hardly reduced tensions between the companies, which earlier this year found themselves jockeying for position over their quarterly earnings.

The fierce competition was highlighted by Thursday's Credit Suisse upgrade of Washington-based XM. Analyst Bryan Kraft boosted his rating to outperform and maintained his $17 price target, citing XM's decision to reduce user-growth targets "to achievable levels."

Actually, lots of different levels appear to be achievable for XM, going by Kraft's comments. "Our analysis," he wrote, "yields a wide range of outcomes yielding stock prices of $9 to $37." Even so, XM shares surged 8% to $13.47.

Sirius may have felt left out, with its shares rising just 4 cents Thursday to $4.07. But the company bounced back by announcing a plan to launch a 24-hour-a-day channel dedicated to The Who. "The pioneering British rock band has reached a new level in its storied career," Sirius said in a press release, and the aging rockers were quick to agree.

"This is the most exciting thing I can imagine," said The Who's Pete Townshend. "I'm completely revved about this."

Speak for yourself, Pete.

Dumb-o-Meter score: 80. "Who's serious about Sirius?" Townshend ponders. "You bet."

To watch Colin Barr's video take of this column, click here.