The Five Dumbest Things on Wall Street This Week

Good at the Commissary? $2 million buys a lot of cigarettes

That's because Fog Cutter's board, in its wisdom, has decided to grant Wiederhorn a $2 million bonus.

Yes. In honor of pleading guilty to paying an illegal gratuity and filing a false tax return, the board of Fog Cutter has granted its ex-CEO nearly six years' worth of pay.

Whoa. We're pretty jaded here at the Five Dumbest Things Research Lab, but even this news left us agape. So we called up one of Fog Cutter's attorneys, the Washington, D.C.-based Lanny Davis, to find out what possible justification the board might have for this generosity.

After a long conversation with Davis (yes, in case you're wondering, it's the same Lanny Davis who used to be Bill Clinton's special counsel), we boil down the company's justification of the $2 million payout to this: The company's board wanted to stay on Wiederhorn's good side.

See, if the company chose the obvious option of firing Wiederhorn, the business would likely suffer, argues Davis. Fog Cutter -- whose assets include controlling stakes in the Fatburger chain of restaurants, a mortgage broker, and a Parisian modeling agency -- would have had to sell one major investment at below-market price, says Davis. Nobody could run the newly acquired Fatburger as well as Wiederhorn does, says Davis.

And finally, says Davis, firing Wiederhorn would have resulted in messy, distracting litigation for the company. Wiederhorn, he alleges, asserted that if the company were to fire him, he would be due a severance payment of at least $7 million. "We did not agree with that," says Davis. "Still, the threat of litigation -- that was a factor, a very minor factor."

Anyway, "Mr. Wiederhorn's long-term commitment to the company and his goodwill were deemed vital to the future of the company," Davis says.

Sounds reasonable -- as long as one ignores the fact, which Davis acknowledges, that the company's board includes some of Wiederhorn's friends and business associates. Wiederhorn and his family own a majority of Fog Cutter's stock. Um, doesn't majority ownership of a company usually ensure some sort of commitment and goodwill?

Not really, says Davis. Given Wiederhorn's business acumen, he could have gone and started up a new company, if he were driven to do that. "There is no noncompete clause," he adds.

"Presumably, if you push someone against the wall, they might pursue something like that -- starting up another company," says Davis.

Now hold on! In what part of the universe does not giving a jail-bound felon $2 million constitute pushing someone against the wall?

Well, maybe in Portland, Ore., it does. Davis points out to us that $2 million is a major comedown from $7 million -- though Davis, at other times in our conversation, tells us that he personally thought Wiederhorn's severance claims were a longshot.

Oh, well. If we squint our eyes and tilt our head, we can almost sort of see that $2 million is a bargain.

3. Time Flies at the SEC

The Securities and Exchange Commission announced a crackdown Tuesday on companies that aren't filing financial statements on a timely basis.

If only the SEC could have done this on a timely basis.

As explained by our ace Wall Street reporter Matt Goldstein, the feds suspended trading in more than two dozen nonreporting companies quoted on the pink sheets. These penny stocks are ripe for stock manipulation, though the SEC isn't alleging that any have been used as part of standard pump-and-dump schemes.

Well, great. Except for the issue that the SEC, years ago, went after 17 of the companies in which it suspended trading Tuesday, for pretty much the same reasons. Yet the SEC seems to be putting teeth into its actions only now.