How Many Bars on Your Cell ... Phone?
1. Tough Talk
Law-and-order posturing was much in evidence after this week's sentencing of WorldCom fraudster Bernie Ebbers.
Ebbers, who was convicted in March of fraud and making false filings, learned Wednesday that he will spend 25 years in jail. After weighing competing arguments on sentencing, federal judge Barbara Jones made quick work of the defense's case for leniency. "This is not a minor fraud," she said.
But if the judge was admirably laconic, there was no shortage of bombast elsewhere. Why, there was former Securities and Exchange Commission chief Harvey Pitt telling MarketWatch.com that the sentence sent "a very strong message" to the marketplace. Pitt, of course, famously relayed his own message a few years back by advocating a kinder and gentler SEC -- before the WorldCom fraud came to light.
Equally courageous was the current administration at the SEC. Following Wednesday's sentencing, the agency said Ebbers had agreed to settle an SEC civil suit alleging Ebbers oversaw fraudulent entries in WorldCom's books. Though he neither admitted nor denied the charges, Ebbers did submit to a lifetime ban from corporate America.
"The officer and director bar is aimed at making sure he is not going to be back in that capacity in corporate America," SEC senior assistant chief litigation counsel Arthur Lowry told Dow Jones.
That's heartening, but soon Ebbers will find himself behind some other bars that will take care of that just fine.
Dumb-o-Meter score: 85.* "The problem with this trial," defense lawyer Reid Weingarten said, "is Bernie Ebbers was transformed into a symbol of corporate corruption." Imagine that.
To view Colin Barr's humorous video take on the ebbing of Ebbers, click here
Shrek Back at Ya
2. Dear Prudence
Fool me once, shame on me. Fool me twice, shame on
This week the animation studio shocked Wall Street with another steep earnings shortfall. And for the second time in two months, the culprit was the unexpectedly hefty returns of home-video movies.
It seems DreamWorks and rival Pixar (PIXR) have been sending stores too many copies of their hit DVDs. Lately, retailers have taken to sending them right back.
So where DreamWorks once expected to make around $1.12 a share for the year, it now expects a profit of just 85 cents. The Glendale, Calif., company cited "an increase in return reserves for its 2004 titles." The setback forced the cancellation of a planned secondary offering in which DreamWorks insiders had planned to unload $500 million in stock. Wall Street sent its regrets by knocking 13% off the stock Monday.
"We have observed changes in the marketplace that appear to have impacted our titles," finance chief Kris Leslie said in a bit of press release understatement.
"While it is too early to determine if these changes are temporary or permanent," Leslie continued Monday, "we think it is prudent at this time to adjust our guidance to reflect higher than expected returns as well as revisions to our video forecasts."
Yes, that does sound prudent -- not to mention long overdue.
Dumb-o-Meter score: 82. Maybe this drubbing will finally wake Jeffrey Katzenberg (pictured with Shrek) and company up.
3. All Clear
Running an award-winning securities clearing operation isn't cheap. Just ask
On Monday the Wall Street powerhouse said it won first place in
magazine's clearing-firm rankings. The magazine's
annual poll of global investment professionals drew some 700 votes.
"The award recognizes our success in delivering the highest standards of client service and technology to our hedge fund, broker dealer and investment advisor clients," said Richard Lindsey, president of Bear Stearns Securities, in a press release Bear issued Monday.
There were some other developments at Bear's clearing unit this week, but the firm wasn't putting out press releases on those. Late Monday, Bear
noted in a regulatory filing that it had set aside another $100 million to pay for a possible settlement with the
Securities and Exchange Commission
. This spring the SEC
voted to bring an enforcement action against Bear over its alleged role in processing and financing abusive mutual fund trades for numerous hedge funds and small brokers.
Though Bear said it believes it has "substantial defenses to the potential claims," the firm conceded that the SEC could order "disgorgement, civil monetary penalties and/or other remedial sanctions." Monday's reserve means Bear has now set aside $200 million to cover a possible settlement.
No word yet on how any payout will affect those high standards.
Dumb-o-Meter score: 78. But those kind words from the readers of
Long Arm of the Crawford
4. Reason in the Sun
Stephen Crawford is nothing if not reasonable.The longtime
executive left the firm Monday after a brief but eventful three-month stint as co-president. It was the promotion of Crawford (pictured at right) and Zoe Cruz, of course, that eventually led to the undoing of former CEO Phil Purcell.
But where Purcell gamely hung in for months, fighting to shield the firm's white shoes from the yellow press, Crawford made a beeline for an exit door illuminated by dollar signs.
Last week, as Wall Street was falling over itself to congratulate Morgan Stanley for rehiring John Mack, Morgan's board handed Crawford a $32 million payday. To get the money, Crawford had to satisfy one of two conditions, Morgan's regulatory filing indicates.
On the one hand, Crawford could get the money "subject to his continued employment with the Company through the end of the Company's 2006 fiscal year," Morgan notes. Or, the filing continues, he could get the dough if Morgan fired him "without 'Cause' ... or he resigns for 'Good Reason.'"
Helpfully, the filing defines what constitutes a Good Reason under the pact. In this case, it covers "among other things, resignation for any reason from July 5, 2005 through August 3, 2005."
Quit tomorrow and get two years' worth of salary? Sounds like a Good Reason to us.
Dumb-o-Meter score: 73. At least the board didn't try indexing Crawford's golden parachute to those of his peers, whoever they might be.
5. Trash Talk
If Morgan Stanley has been generous of late, teen retailer
is setting the Gold standard.
The Foothill Ranch, Calif., mall chain said Tuesday it had reached an agreement with consultant Michael Gold to "compensate him for his part in the sales turnaround of the Company and provide incentives for his future assistance in achieving the Company's return to profitability." The deal will pay Gold $4 million in cash over two years in addition to some 5.5 million restricted and performance shares.
No question, Wet Seal's revival has been remarkable. The stock has more than tripled since Gold came on board in November, alongside hedge fund investor SAC Capital and a month before CEO Joel Waller. Shaking off last year's plunging sales and store closings, Wet Seal in recent months has posted same-store sales gains in excess of 50%.
Clearly, Gold, even as a mere consultant, has had a strong role in that rebound. He's known in the industry as an avid cost-cutter. "There have been stories that he takes out his own trash,"
reported this month in a story deeming Gold "a near-legendary figure in Canadian retailing."
That said, while recent sales gains have been impressive, Wet Seal remained deep in the red in its latest quarter, losing $8.6 million from continuing operations for the first quarter. And on top of that, the costs of the big payday will be felt for years to come. "The company believes it will take significant charges for its second quarter ending July 30, 2005 and most likely for all future quarters through January 31, 2007," Wet Seal said Tuesday.
Yes, you could get the idea that Wet Seal is barking up the wrong tree here.
Dumb-o-Meter score: 68. Obviously, retail turnarounds don't come any cheaper than award-winning clearing firms.
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