The Cruel Calculus
You think your broker is ripping you off? Well, wait until you read about this.
On Tuesday, the NASD -- the watchdog of the brokerage industry -- said it was fining three investment banks a total of more than $15 million. Their alleged violation? Charging unjustifiably high commissions for straightforward trades of liquid, listed stocks.
For example, NASD says that in November 1999, a customer of Bear Stearns sold 50,000 shares of a highly liquid stock. The typical commission on a trade like this, says the NASD, would have been 6 cents a share, or $3,000. Instead, the customer ended up paying a $2-a-share commission, or $100,000.
Oh, the outrage! A $97,000 overpayment. Gosh, if we had been that customer, we would have been outraged by such inflated, bucket-shop trading fees!
Well, maybe not.
See, we left out a small but significant part of the story. On that very same day in November 1999, Bear Stearns allocated to that very same customer 125,000 shares of a hot IPO. Shares in the IPO jumped over 84% in the first day of trading, says the NASD, giving the customer over $1 million in profits.
A Bear Stearns spokeswoman didn't respond to a request for comment. Earlier this week, the company told
The Wall Street Journal
it was happy to resolve the case.
In leveling this accusation at Bear,
as well as similar ones at Deutsche Bank and Morgan Stanley, the NASD doesn't quite connect every single dot. But the story seems pretty obvious to us: A brokerage favors a big-ticket client with a much-sought-after IPO allocation -- an opportunity to make a lot of money quickly. The client, bursting with gratitude, round-trips some of that money back to the brokerage, in an otherwise inexplicable fit of generosity.
The client's happy. So is the broker. Of course, you the little guy come up short, because you didn't get the allocation. And the company that's going public misses out on the first-day upside. Somehow, we're not shocked.
2. Don't Call Us, We'll Call You
is trying to ease the pain of its latest round of job cuts.
Unfortunately, our sources say, it's not trying all that hard.
Earlier this month, you may recall, the troubled telco formerly known as WorldCom said
it would cut 7,500 employees, or 15% of its staff, in the current quarter.
In advance of the layoffs, MCI is seeking volunteers.
To us, that sounds like a good thing; the more folks who step up to take a buyout at MCI, which recently emerged from bankruptcy, the fewer people who will suffer the pain of involuntary job loss.
That's the theory, at least.
In practice, say insiders, the incentive for volunteers is laughably small. Imagine the school bully walking up to you in the morning to tell you that there's a 15% chance he'll beat you up at lunch, unless you agree to have him punch you in the nose right then.
There's not much upside to choosing the immediate assault, is there? If the worst outcome either way is a bloody nose, why volunteer?
Service With a Smile
Anyway, according to two different MCI sources, the package being dangled in front of potential volunteers is this: One week's pay for each year that you've spent at MCI.
Seems OK, until you understand the context. One of our sources says that one-week-a-year package has been MCI's standard handout to people fired in prior rounds of layoffs. Another source says that during past rounds of layoffs -- when the company was in bankruptcy protection, for example, and after WorldCom bought MCI -- those involuntary ex-employees received two or three weeks of pay for each year they had been at the company, up to a maximum of 26 weeks.
In other words, we are told, MCI was trying to lure people into departing by offering less than or about the same as they expect to receive if they're laid off -- and substantially less than involuntarily departing people have received in the past. (The one-week buyout offer expired Thursday, we understand.)
An MCI spokeswoman declined all comment on the layoffs and buyout offer.
"In my mind, you would think if you're asking people to volunteer to leave their position, you would offer some sort of incentive above the ordinary involuntary package," says one MCI veteran, speaking on condition of anonymity. "The main benefit I can think of taking this is if you've already got a job lined up, in which case you get the severance package, and you've got another job waiting for you."
In other words, MCI should be suspicious of all the employees yelling, "Punch me!"
3. Talk It to the Limit One More Time
We're generally in favor of companies talking to reporters, us being reporters and all.
But sometimes we wonder why the heck people would be so stupid to do it.
One of those times came this week, when reports indicated that the
Securities and Exchange Commission
put the initial public offering of
on hold, thanks to the blabbermouthing of CEO Marc Benioff.
Another one of those times came Monday, when we read about a $25 million fine that
has agreed to pay the SEC.
As part of the settlement, Lucent neither admitted nor denied that it "fraudulently and improperly" recognized about $1.15 billion in revenue and $470 million in pretax income during its fiscal year 2000.
But that wasn't why Lucent had to pay $25 million.
Back in March 2003, you see, Lucent assured the public, "We self-reported certain revenue recognition issues to the SEC ... and cooperated with the SEC."
Well, not exactly. "Lucent agreed to pay a $25 million penalty for its lack of cooperation," said the SEC this week.
"Throughout the investigation, Lucent provided incomplete document production, producing key documents after the testimony of relevant witnesses, and failed to ensure that a relevant document was preserved and produced pursuant to a subpoena," says the SEC.
Further, says the SEC, after Lucent agreed in principle to settle the case, Lucent's outside counsel, in an interview with
magazine, characterized one fraudulent revenue booking as a "failure of communication."
Yes. By doing so, Lucent's lawyer effectively denied the allegation of fraud -- thus reneging on the deal to neither admit nor deny the SEC's allegations. If everybody had just shut up with the reporter came to call, Lucent might be $25 million richer today.
"From the beginning, it was always the company's intention to cooperate and work with the SEC staff throughout the course of its investigation," a spokeswoman told us Thursday. "We accept any responsibility for any shortcomings in our coorperation, and we are putting this matter behind us."
4. Martha Meets Her Matches
Oh, the indignity.
It's sort of flabbergasting to us, the degree to which Martha Stewart can't catch a break.
We're not just talking about that little problem earlier this year with those guilty verdicts. No, the hits -- more precisely, the body blows -- just keep on coming.
On Tuesday, we learned that the Stewart-founded
Martha Stewart Living Omnimedia
is suspending production of its flagship show,
Martha Stewart Living Television
. Forty staffers will be let go by the end of June, according to the
-- 40 more folks caught in the metaphorical crossfire between federal prosecutors and Martha Stewart.
You would think that fulfilled the bad-news-for-Martha quota for the week, but no. Also on Tuesday, the Consumer Product Safety Commission announced that
, the exclusive retailer of Martha Stewart Everyday merchandise, had instituted a voluntary recall of Martha Stewart-brand safety matches.
Those matches, apparently, aren't so safe: The CPSC and Kmart say they may ignite upon impact, though no unpleasant incidents have been reported.
A whole bunch of thoughts rushed through our heads, as we admired the photo of these 11-inch matches, preciously Martha Stewart-esque tools for lighting that preciously Martha Stewart-esque fire in your preciously Martha Stewart-esque fireplace whose mantelpiece is decorated with preciously -- well, you get the idea.
Where There's Smoke...
First thought: More bad luck for Martha. Second thought -- well, maybe it's not so bad. Recalls happen to the best of consumer product companies, and besides, the CPSC says that only 588 recallable matchboxes were sold, at a price of $2 apiece, between January and March 2004.
Third thought -- only 588 boxes? How lame is that? How pathetically few sales Martha rang up on the cash register. For purposes of comparison, when
recalled its Snowman Nightlight Diffuser this month, it turned out that the direct sales giant had sold 333,000 of the dorky-sounding items, at a price of $10 to $15 each, over six months last year. We suspect $1,176 of matches probably doesn't even cover the printing job for those preciously Martha Stewart-esque matchboxes.
Like we said, she just can't catch a break.
5. Security Blanket Statements
Computer network software theft can happen to anybody, we suppose. It's just funnier when it happens to companies that make a lot of noise about how their computer networks protect your software.
That's why we were somewhat amused this week by reports that computer hackers had stolen 800 megabytes of network operating software used in
routing and switching systems.
"Cisco is aware that a potential compromise of its proprietary information occurred," the company said in a statement. "Cisco is fully investigating what happened."
Cisco, of course, has been talking up a storm lately -- and buying up security companies -- in an effort to persuade people that Cisco technology will make companies' networks safer. It all feeds into the Cisco catchphrase touting the "Self-Defending Network."
The campaign all comes together in some TV ads in which a girl, playing around at her father's office, accidentally downloads a virus into her dad's desktop PC -- a virus which the noble Cisco network quickly and telegenically vanquishes.
Cisco doesn't quite see the connection between its ad campaign and this recent security breach. "It appears this occurrence was not the result of any exploitation of a vulnerability in any product or service offered by Cisco to its customers and partners," says Cisco.
Yes, the self-defending network might be unique, but the self-defending response is pretty run-of-the-mill.
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