The Five Dumbest Things on Wall Street This Week
Witness Chintz |
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What with the Oscars ceremony coming up Sunday night, we at the Five Dumbest Things Research Lab are in an award-giving mood. So for one week only, we're not just going to call attention to Dumbness on Wall Street. No, we're also awarding a valuable prize to the folks we are gracing with our attention: a gold-plated statuette that we call the Labby.
Remember, it's an honor simply to be nominated.
1. The Best Defense Is a Bad Offense
The inaugural Labby goes to Martha Stewart's lawyers, who won major style points Thursday for boldly calling just one witness before putting their case to bed. The tactic was hailed as a daring bid to persuade the jury and world that government lawyers never came close to erasing reasonable doubt.
Fair enough. Stewart's bulldog lawyer Robert Morvillo is famous for his take-no-prisoners battle plans and undoubtedly knows how to run a criminal defense better than anyone at the lab. Still, the testimony produced by that single witness, lawyer Steven Pearl, left us wondering something else.
Why not zero witnesses?
Pearl is the former Wachtell Lipton lawyer who accompanied Stewart to an interview with the FBI conducted about a month after she made her famous ImClone trade. Evidently, Morvillo & Co. thought he would clear up allegations that Stewart lied about a call she received from broker Peter Bacanovic the afternoon she unloaded the stock.
Under defense questioning, Pearl was able to proffer that Stewart told the agents she didn't know what time Bacanovic called on the afternoon of Dec. 27, 2001. The point is arguably significant given that the government's notes suggest Stewart claimed not to have known about the call at all. That's been hard to believe because an assistant testified earlier that Stewart erased and recorded a message logging the call.
The testimony struck many present in the courtroom as a trifle obscure, dealing as it did with a 2-year-old interview about a 10-second phone call. Bigger problems emerged in cross-examination, where Pearl noted that his recollections might well be wrong.
"Mr. Pearl, sitting here today, you have an insufficient memory to say whether your notes are accurate, isn't that true?" asked U.S. Attorney Karen Seymour.
"Yes," agreed Pearl.
"And you can't say sitting here today that your notes are complete, can you?" she asked.
"No," Pearl replied.
Movillo must have some closing argument.
2. Planetary Ovitz
The Labby for the Best Reason to Be Michael Ovitz was won hands-down by a court filing we read this week out of a court case involving
Disney
(DIS) - Get Report
in the Delaware Court of Chancery.
As you may recall, Disney CEO Michael Eisner is under fire for a number of reasons, as momentum builds for shareholders to withhold votes for the board chairman at Disney's annual meeting next week in Philadelphia.
Contributing to that momentum this week was a recommendation by proxy advisory firm Glass, Lewis & Co. to withhold votes for Eisner. And contributing to Glass, Lewis's recommendation were court documents released this week from the Delaware case, which stems from Disney's hiring of then-agent Ovitz to be president of the entertainment conglomerate.
By most accounts, that hiring was a disaster. Ovitz departed about a year after he came aboard, after having contributed little or nothing of lasting value to Disney.
The plaintiffs in the suit allege mismanagement by Eisner in Ovitz's hiring and firing. Which may be true. The court document we got this week -- a report from a plaintiff's expert witness, Duke University law professor Deborah DeMott, on the subject of Ovitz's hiring and departure -- is full of such allegations.
Ovitz Put on the Ritz |
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But rather than discuss allegations of poor corporate governance, we'd like to fixate on something else in the document: Michael Ovitz's money. He was rolling in the moolah before he arrived at Disney, but after he arrived, things got better and better.
Some choice allegations from the filing:
Ovitz submitted expense reports for business entertainment that occurred prior to his appointment as president by Disney's board. The day of his appointment, he hosted a party at his home honoring the artist Chuck Close. Disney footed the bill.
While at Disney, Ovitz received at least $27.9 million in commission income from clients represented by his former employer, the talent agency CAA.
In Ovitz's 15 months at Disney, he ran up $6.3 million in business expenses.
Ovitz renovated his office at a cost of $2 million.
Upon his departure in 1996, Ovitz received a $7.5 million bonus. Days before awarding that money, a director noted on a relevant document "bonus if does a good job and keeps mouth shut."
So when will someone start paying
us
to keep
our
mouths shut? We promise: We're much cheaper to buy off than Ovitz.
3. Don't Look, Don't Tell
And the Labby for Best Ability to Keep a Straight Face on the Witness Stand goes to Mark Swartz!
The former chief financial officer of
Tyco International
(TYC)
-- on trial for larceny, among other charges -- wins for his performance Monday, when he was testifying about his W-2 form for the year 1999.
Tyco, Tyco |
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The W-2, you'll recall, is that slip of paper that employees receive each January -- the slip of paper that summarizes for them, and for the Internal Revenue Service, what they earned the prior year.
Swartz -- remember, he was the chief financial officer of a Fortune 500 company -- testified that he never noticed that his 1999 W-2, which listed $10.6 million in compensation, didn't include an additional $12.5 million in loan forgiveness.
"Did you not know early in 2000 that more than half of your income from 1999 was missing (from the W-2 form)?" the
Associated Press
reports a prosecutor asking Swartz.
"I do not recall ever looking at my W-2 until 2002," Swartz answered.
Ah, yes. Pretty credible testimony from Tyco's onetime mergers-and-acquisitions wizard.
On the other hand, Swartz also said he filed no New York state taxes for three years when his family lived in New York full-time and he worked here part-time, according to the
AP
. So maybe he was just one of those big-picture CFOs, not one of the ones who actually pay attention to the numbers.
No AARP Endorsement |
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4. Like It Isn't
What if you appeared before Congress with millions of people watching, restated an idea to save money, and not a single legislator expressed support? Surely only the dumbest of dumb ideas would fail to garner a second from even one politician from either major party. With this in mind, we are giving Alan Greenspan the Labby for the dumbest public-policy-reform proclamation of the week, if not the decade.
The
Federal Reserve
chairman thoroughly embarrassed himself by suggesting that Social Security benefits for future retirees might need to be reduced if the nation is to avoid a paralyzingly high budget deficits.
"The one certainty is that the resolution of this situation will require difficult choices and that the future performance of the economy will depend on those choices," he said.
This lunacy was condemned by Republican and Democrat alike. President Bush committed himself to full benefits for all. And while Democrats applauded Greenspan's condemnation of the soaring deficit, none came close to endorsing Greenspan's cut in future benefits.
Cutting Social Security benefits! You'd think Greenspan would have heard of the Third Rail of American politics. Doesn't he know that even mentioning a change in this most popular entitlement would seal defeat for any candidate?
And if Greenspan would make such an outrageous remark this week, we at the Lab think it may be time to re-examine some of the other things he's said over the years. Did you know that in 1996, Greenspan suggested that financial markets were demonstrating "irrational exuberance?" If people had listened to Greenspan then, some of the tremendous shareholder wealth created between 1996 and 2000 might have senselessly diminished! And while Greenspan seems to have toned down his anti-tax-cut rhetoric, back in 2001, when he was younger and more reckless, Greenspan suggested that future tax cuts be contingent on the continuation of budget surpluses.
The man is a menace.
5. Of Course, All You Non-Executive Types in Newfoundland Are Out of Luck
The fifth and final Labby goes to all the executives across the country who get a little lonely from time to time. We understand why so many sign up for online dating services that are designed especially for them.
Well, we have some advice for the lovelorn, straight from our scandal file. Maybe signing up for one of these services isn't the smartest way to spend your time, especially considering the overwhelming response we received from the Federal Trade Commission about policing them.
One astute reader pointed us to a site called
Executive New York Dating -- just the perfect spot for New York executive wannabes like us at the Research Lab.
Before we signed up, we clicked over to the site's page labeled "Success Stories." There, underneath the service's invitation to email any stories we would like to share, Executive New York Dating listed what it labeled as "Featured Letters and Excerpts."
There followed excerpts of a dozen letters from satisfied customers. All of them had a wonderful experience with ENYD, some with extremely detailed stories about how happy in love ENYD had made them.
One happy customer was Lucile V., Manhattan, age 48, who wrote a long and involved story that involved her friend, Beverly E., recommending ENYD to her, with happy results for Lucile. "Thank you to ENYD," she wrote, "for helping me find my true soul mate, Jacob R. I would recommend to everyone, whether you are a busy realtor, accountant, restaurant owner, or whatever your lifestyle may be, to join ENYD. You will find a new precious light in your life."
Which sounded pretty cool to us. Except for the fact that, with a little more searching on the Internet, we found a site for Executive North Dakota Dating. And there, on the Success Stories page, was a long and involved letter from Fanny L., Bismarck, who was also referred to ENDD by her friend who -- would you believe it? -- was also named "Beverly E. "Thank you to ENDD," wrote Fanny, "for helping me find my true soul mate, William R. I would recommend to everyone, whether you are a busy realtor, accountant, restaurant owner, or whatever your lifestyle may be, to join ENDD. You will find a new precious light in your life."
How's that for a coincidence? In fact, we counted 91 different Executive Dating sites, each catering to a different geographic area, ethnic group or other subcategory of the dating world. Executive Newfoundland Dating. Executive Lesbian Dating. Executive Russian Dating. Executive Tennessee Dating. Executive European Gay Dating.
Despite some differences in mailing addresses and employee names listed for each site, all seem to share the same Michigan area code phone number.
And all sites feature essentially the same dozen or so "Success Stories," though names of correspondents, and certain other details, change from site to site. On Executive Jewish Dating, one reads, "Hooking up with Executive Jewish Dating was definitely the best recommendation our Rabbi could have given us. ... We just want you to know that we've had more response from Executive Jewish Dating in 4 weeks than from our previous (big name company) in 2 years!!!!"
Meanwhile, over on Executive African-American Dating, one reads, "Hooking up with Executive African-American Dating was definitely the best recommendation our Minister could have given us. ... We just want you to know that we've had more response from Executive African-American Dating in 4 weeks than from our previous (big name company) in 2 years!!!!"
And, of course, on Executive Catholic Dating one reads, "Hooking up with Executive Catholic Dating was definitely the best recommendation our Priest could have given us. ... We just want you to know that we've had more response from Executive Catholic Dating in 4 weeks than from our previous (big name company) in 2 years!!!!"
Now, all this blatant recycling would be pretty funny, except for one little thing. Whoever signs up for any of these services -- if in fact, anyone other than Beverly E., Lucile V. and Fanny L. is using them -- is paying money for them. Lots of money: The cheapest price listed on the site is $997 for a six-month membership. And anyone willing to pony up that kind of money -- especially because six months on Match.com costs only $66 bucks -- would have to have pretty good reasons to do it. And we can't help wondering if these testimonials are the reason.
We called up the Federal Trade Commission, which enforces federal consumer protection laws preventing fraud and deception, to see what they had to say about creative writing in dating service testimonials.
Generally speaking, they weren't supportive. "A fabricated testimonial would definitely be a deceptive advertising issue," says Heather Hippsley, assistant director of the FTC's advertising practices division. Also deceptive, she says, is a duplicated testimonial.
"It's misrepresenting to consumers that they
the Web sites had actual people providing them with success stories, when they perhaps have one and have turned it into 20 or so. ... That's clearly deceptive, because they're misleading the consumer into thinking they have something that they don't, which is real-life consumers using their service and vouching for their experience."
Hippsley suggested we seek proof from the company that real customers had really supplied these testimonials. So we called up Executive Dating to ask. Someone from Executive Dating emailed us in response, asking us to ask our questions via email. We did so twice, over the course of a week. No one ever responded.
Isn't that always the case when you're dating? You think you've hit it off, but they never call. They never write.
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