Disclosure and the Great Tech Crash: Readers Speak Out - TheStreet

Roaring waves of readers have reacted to Friday's

piece on the paucity of investor outrage following this year's technology stock crash. As usual, the responses have been intelligent. They also reveal latent public anger toward the Wall Street firms that brought ill-prepared companies to market. The deep skepticism toward Wall Street, however, does not translate into consensus on what should be done about questionable underwriting practices.

M.H., a lawyer who prefers to remain anonymous because "I don't want The Firm to become uneasy," has a theory about why investors are not complaining more:

A person new to the stock market would have just skimmed the disclosure statements, or not read them at all. In fact, many IPOs had this language, and after a while, it just seemed to be routine boilerplating. As a result, inexperienced investors may be used to being wrong and just see it as another bad decision. Additionally, newbies on the Net in general and on the stock market in particular assume that they just didn't understand the IPO mechanism, or the jargon. They are used to feeling that the technical world is complex and in some cases, indecipherable, so it does not surprise them that they guessed wrong.

A former

National Association of Securities Dealers

arbitrator, Gregor Riesser, writes:

I think that many of the IPOs are sanctioned scams. (Most people get the prospectus well after the purchase, if at all...) The day that one of the big companies goes into Chapter XI, you are going to see more congressional hearings and whining than you can shake your fist at.



has her own theory about why we have seen so few lawsuits, which she thinks are coming:

Where's investor outrage? Where are the lawsuits? Good questions. The underwriters ran a sleazy game, but they probably played by the rules in place. The individual willing to initiate a slugfest in the courts against these fine, upstanding, venerable investment bankers has yet to step forward. But when they do, there will be a stampede to join in the complaint. As for Senate hearings: There ain't gonna be any. Those nice lawmakers count on Wall Street for big campaign contributions. ... So one shouldn't hold one's breath waiting for any accountability from the underwriters: You might turn blue -- like the sky -- before that happens.

Frank M. Bifulco

, a chartered financial analyst, says the reason for no lawsuits is simple:

To date, there have been no class-action lawyers looking for so-called "victims" who risked their money and lost. The lawyers are too busy suing cigarette companies ... HMOs ... breast implant makers ... you get the point. When the tort bar comes calling, you will find that fewer investors read the "Disclosure" statements in the S-1s than smokers who read the Surgeon General's warnings on the side of a box of cigarettes.

Massively Cynical, but Wary of Government Action

How cynical are readers about Wall Street? Very. Listen to

Elliot M. Simon


As far as the underwriters are concerned, we have now come to the point where analysts have less credibility than politicians. This will eventually cost them dearly. Eventually, people won't buy IPOs. I don't. And if an analyst were to tell me that the sky was blue, I would go outside and check for myself!

And yet, there is no agreement on what can, or should, be done to prevent this IPO fiasco from recurring. Simon says:

The last thing we want is to create laws that allow investors to not take responsibility for their own actions. ... As long as everything is filed properly, and there are no misrepresentations, that should be it. It is not the government's role to baby-sit functionally illiterate individual investors. The SEC is doing a creditable job of prosecuting fraud, and is attempting to level the playing field. I like what they are doing with regard to the selective disclosure regs, opening up the market makers' order books, and decimalizing the spreads. This is their only legitimate function. Where there is not fraud, there should only be caveat emptor!

Regulators, according to reader


, "can't protect people from themselves and they should stop trying to." He says he deals with securities regulators "on a regular basis" and says, "This is their view also -- though I don't think they would want some of their superiors to know." (Let's

hear from some compliance officers and regulators on this notion. Is it accurate in your experience?)

Brooke Anderson

of Seattle shares that libertarian sensibility and hopes that people will take personal responsibility for their investment fiascoes.

Because I have enough assets, the government will let me invest in most private placements. I can be my own venture capitalist. I have made more money doing that -- and it is risky -- than I could anywhere else I know of. The SEC has decided that, because I have enough money, I must know what I'm doing and will let me take the risk. However, there are many people out there just as smart or smarter than I am who don't happen to have $1 million in net worth and thus who are often restricted from investing in deals, which they can value as well as I can. They are restricted from the downside, but they are restricted also from an enormous upside. It boils down to who should have control over your own life: you or some government agency. You can't have the freedom to make your own choices, enjoy the benefits when it works out, but go crying to mommy if it doesn't, pleading that you shouldn't have been allowed to make the decision that time. ... I'm hoping that people are deciding that they are responsible for their own lives and their own investments -- that having the freedom to make money on various types of investments means that they also get as part of the deal the freedom to screw up.

Let's end with reader

Jeffrey Brown

, a former banker with a foreign institution. He notes how the IPO game is stacked against individual investors, even when they can get a piece of a hot deal:

A major problem facing small investors is that they must hold on to their IPOs on average for 30 days. If they don't, they don't receive new IPOs in the future from their brokerage firm. Hedge funds, mutual funds and others can flip out of an IPO on Day 1. Thus the big boys have quite an advantage. An example of this is the Palm (PALM) IPO. It came out at 38 and traded as high as 160 on Day 1. I would have loved to sell on the first day, but then I would have been cut off from future IPOs. I waited 30 days and sold it at 40. The playing field should be level.

Here at


, we're doing our best to get it that way. Keep those emails coming to