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The Five Dumbest Things on Wall Street This Week

CEO admits error; Quattrone's snail email; Google's share 'sellback'; and more.

Ergen Errata
Charlie Sorry

1. Charlie Both Dishes It Out and Takes It

Remember last month when we told you how dumb Charlie Ergen was acting?

Well, this week we found someone new to agree with us: Charlie Ergen.

As we at the Five Dumbest Things Research Lab reported a month ago, Ergen behaved egregiously on a late-March conference call with analysts and investors regarding fourth-quarter results for 2003.

For some incomprehensible reason, Ergen -- CEO of EchoStar Communications (DISH) - Get DISH Network Corporation Class A Report, operator of the Dish Network satellite TV service -- refused to answer a simple, commonplace question: What was the price at which EchoStar repurchased its stock in the most recent quarter?

Though this figure is based on publicly available information, and though companies have been answering this question for decades, Ergen grumpily clammed up -- much to the surprise of the respected EchoStar shareholder who asked the question, Wall Street veteran Leon Cooperman.

Odd and inexplicable, we thought. We pressed the company on Ergen's apparent rudeness, but EchoStar remained publicly unapologetic.

Until Thursday. That's when, on the company's first-quarter conference call, an analyst made a joke about how


wasn't going to ask any question about the price at which EchoStar bought back its stock this quarter.

That remark prompted Ergen to say he'd received a "really nice letter" from Cooperman on the subject.

"I made a mistake by not giving that number out," Ergen said. "I think we've disclosed it this time. ... You know, I made a mistake, and he asked a very legitimate question, and he was also kind enough to take the time to articulate that to me by letter, and I appreciated that."

Wow. A public expression of regret by a CEO who isn't at a sentencing hearing.

2. Brooking No Quattrone

Poor Frank Quattrone.

The former Credit Suisse First Boston banker, the onetime financial king of Silicon Valley, was found guilty this week of obstruction of justice and witness-tampering.

It turned out to be deceptively easy for Quattrone to get a shot at jail time: All he had to do was forward an email advising staffers it was "time to clean up those files."

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Like others before us, we'll point out the obvious: As smart as Frank Quattrone and

Martha Stewart Living Omnimedia


founder Martha Stewart must be, they never learned the famous lesson inadvertently taught by another smart guy, Richard Nixon: It isn't the crime that gets you in trouble, it's the cover-up.

For some nonobvious thought, we'll turn to journalist/blogger

Chris Nolan, who has been covering Quattrone both on his way up and his way down. ("Covering" Quattrone might be the understatement of the year, actually; Nolan broke the story about how Quattrone's investment banking clients enjoyed privileged access to hot initial public offerings, as well as the existence of the infamous "clean up those files" memo.)

Email Franking Privileges
Oh Quattrone you don't

So how could Quattrone be found guilty on a foundation as slender as a single email? That evidence wasn't strong enough, evidently, at his first trial on these counts, which ended in a mistrial.

Nolan has an answer, we think.

This time around, the jurors couldn't understand how Quattrone "could make $120 million a year and only kinda know what was going on," writes Nolan. "They're right. That's always been my problem with the defense.

"The Frank Quattrone who sat in court, and the Frank Quattrone who advised some of the smartest people in the country on how to run their companies, weren't the same guy," Nolan explains. "Silicon Valley Frank was a relentless, detailed-oriented guy who often drove his clients crazy. Courtroom Frank was a nice man overwhelmed by email and subordinates' queries and comments.

"Silicon Valley Frank would have fired Courtroom Frank in a heartbeat."

Well said, frankly.

3. For the Better Google

Those folks at


may become fabulously wealthy in their forthcoming initial public offering of stock. Maybe they should use some of their money to buy some better legal advice.

Google Goof
Uh, can we have our stock back?

As we learned from our close study of the Google offering document filed late last week, the search-engine phenomenon has issued 35.5 million shares and options over the past few years in apparent violation of securities laws. The problematic stock, which Google said it didn't properly register or qualify, amounts to 13% of shares outstanding, we calculate.

This happens to the best of companies, according to a lawyer we talked to. "From time to time, you do see issuers run afoul of private placement restrictions," says Michael Littenberg, a partner practicing securities law at Schulte Roth & Zabel.

Soon after its IPO, Google plans to conduct what's called a rescission offer. In other words, it's giving the current owners of the questionably distributed stock the opportunity to sell it back to the company at the price at which they received it.

What this rescission offer does, says Littenberg, is clarify that the capitalization of the company is properly disclosed, and cut off any future claims that people might have to sell the shares back to the company.

"They're doing the right thing," he says. "They're being good corporate citizens here."

Of course, there's one little problem with the company's plans. Considering the near-universal obsession with Google's IPO, and considering, by our calculation, that shareholders got these shares for an average of 95 cents apiece, who's going to want to sell stock back to Google at that price?

"Nobody's going to rescind," says Littenberg. "Nobody who's been reading the papers, at least."

4. Numb and Number, Dumb and Dumber

Back when we were kids, we believed that there was some relationship between the numbers on a company's financial statements and the actual business it conducted.

Yeah, well, that's gotten beaten out of us.

We always thought the champion in the number-fictionalizing department was


, the telecom company now known as


. After all, you may remember, this was the company that

pioneered accounting via Post-it Notes -- making hundreds of millions of dollars worth of alterations to its books on the basis of nothing more than someone writing a random number on a yellow sticky note.

But watch out, WorldCom, because in the world of disconnected-from-reality finances,

Adelphia Communications

is gaining on you.

Yes, at the ongoing trial of former executives at cable TV operator Adelphia, some alarming testimony emerged this week regarding the apparent utter disregard that Adelphia's founding family -- John J. Rigas and his sons -- had for accurate financial statements.

Testifying for the prosecution, former Adelphia Vice President of Finance Jim Brown said the company kept two sets of books -- one that tracked the company's actual financial performance, and one that went out to the public at large.

Two sets of books is disturbing enough. But what's more upsetting is how Adelphia got the numbers for the fake set, according to the write-up of the trial we've been reading in

The Potter Leader-Enterprise.

In the third quarter of 2000, Adelphia reported an annual basic subscriber growth rate of 1.1%. And where did Adelphia get that 1.1%? Why, it copied the growth rate from the financials of fellow cable operator


(CMCSA) - Get Comcast Corporation Class A Report

, Brown testified. Comcast had reported its third-quarter numbers eight days earlier.

How lame is that? Adelphia couldn't even make up its own fake subscriber growth number -- it had to lift it from someone else.

The whole thing reminds us of kids who tried to copy our answers when we were taking tests back in elementary school. Where would it get them, we wondered. Now we know: Adelphia's finance department.

5. Disney's Happy Ending

News erupted this week that


(DIS) - Get Walt Disney Company Report

won't let its Miramax subsidiary distribute the Michael Moore documentary

Fahrenheit 9/11

-- a movie that, we are told, explores the relationship between the family of President George Bush and the family of al Qaeda leader Osama bin Laden.

"Censorship! Outrage!" some people are screaming. "A publicity stunt, a carefully planned tempest cooked up by Michael Moore!" scream others.

We suppose we here at the lab -- whiny card-carrying liberals that we are -- should be upset about the politics of all this. But we don't care.

Instead, all we can think of is the business angle.

See, under the leadership of CEO Michael Eisner, Disney has been releasing a lot of turkeys of late:


, Tom Hanks'

The Ladykillers

, the animated bovine epic

Home on the Range

, Ben Affleck's

Jersey Girl

, and

The Alamo

. Box-office underachievers all.

So what does Disney do with a movie that somebody might actually want to go see? It refuses to distribute it.

Yet another surprise ending from Eisner, we guess.

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