The Five Dumbest Things on Wall Street This Week

3. It Could Have Been Worse. Someone Could Have Bought a Dog Umbrella Stand With All That Money

What with squeaky-clean corporate being the latest obsession, the proxy statement issued Tuesday by DG Systems (DGIT Quote) takes a refreshingly big-picture approach.

The ticklish issue at hand here is what to do about the company's chairman, Scott Ginsburg, who joined the audio/video distribution system company in December 1998.

Less than a year after Ginsburg assumed the posts of chairman and CEO at DG Systems, a bit of unpleasantness reared its ugly head. Namely, the Securities and Exchange Commission accused Ginsburg of misappropriating material nonpublic information from Evergreen Media, the company he previously headed, by passing along stock tips to his brother and/or father about two other companies of which he had knowledge.

In April of this year, a jury found Ginsburg guilty of tipping; in July, a judge imposed a $1 million civil penalty on Ginsburg. He is appealing.

In the meantime, what's a fair-minded board to do? "Where an officer or director of a public company has been found to have violated the federal securities laws, it is typical for the officer or director to resign his position," notes the DG Systems proxy statement. But in this case, says the DG Systems board, it's inclined to give Ginsburg a second chance.

While board members favor keeping Ginsburg on as chairman -- he ceded the presidency in 1989 -- directors are bouncing the idea off the shareholders. At the company's Dec. 4 shareholder meeting, shareholders will cast their ballots in a nonbinding vote of confidence in Ginsburg. If 33% of shareholders vote against the proposal, the board intends to ask for Ginsburg's resignation. Ginsburg, by the way, plans to vote his 41% stake in the company as a vote of confidence in Scott Ginsburg.

Though we ourselves would probably vote Ginsburg out of there faster than you can say "ImClone (IMCL Quote)," the board makes a plausible argument for keeping him on. Among other mitigating circumstances, the board points out that the presiding judge specifically rejected the SEC's argument that Ginsburg deserved an injunction restraining future conduct.

Of course, the board does admit elsewhere that in determining whether Ginsburg's continued service is in the interest of DG Systems stockholders, the board did not consider whether another person would better serve DG Systems as chairman.

That's a question worth entertaining. According to a table in the proxy statement, DG Systems shares lost 80% of their value in the three years after Ginsburg showed up. Relevant Nasdaq indices, in comparison, fell 13% and 18%.

Forget the insider trading. A plummeting stock is the worst crime of all.