Book Review: 'Confessions of a Wall Street Analyst'

Retired telecom analyst Dan Reingold rues Jack Grubman and regrets not blowing the whistle.
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Retired research analyst Dan Reingold opens his story in a Manhattan courthouse, where he beholds a deflated Bernie Ebbers. Ebbers, the former

WorldCom

chief, has just been found guilty of masterminding the nation's largest corporate fraud. Reingold reflects on the lies, greed and ruin left in WorldCom's wake.

But somehow, a bigger villain emerges out of Reingold's tale of the telecom bubble: his rule-bending archrival, Jack Grubman.

Reingold's book

Confessions of a Wall Street Analyst

, released Feb. 7, chronicles his 14-year rise from

MCI

number-cruncher to top telecom research analyst. These, of course, weren't ordinary times. The stock market was on a tear, and investors armed with truckloads of money were hunting for growth stocks. This coincided with federal legislation that helped create hundreds of new phone companies. And advances in wireless technology, fiber optic networking and the Internet opened huge market opportunities.

Although successful beyond his dreams, Reingold considers himself a man out of step with his times.

Telecom, the once-sleepy corner of tech, had become a seductive sector swarmed by investors and teeming with banking deals. Money corrupts, and the big money seems to have intoxicated some otherwise ethically upright market participants.

But not Dan Reingold. As Reingold tells it, Wall Street was a crooked game and his integrity was repeatedly put on the line as he crossed paths with bankers and huckster executives. Though no one actually twists his arm, he feels an unspoken pressure to play ball. His employers -- investment banks Merrill Lynch and CSFB -- certainly wouldn't be hurt if he put positive ratings on companies as they pursued lucrative roles in public stock offerings and merger deals.

The book offers a glimpse into the analysts' world. The constant travel, with 24-hour flights to deliver two-hour pitches. The four-star restaurants, and the "minor lactose intolerance." The separation from family, yet the exotic family vacations. But more than anything, the reader hears the voices in Reingold's head and understands the crutch of professionalism he uses to offset his abundant insecurities.


Insanely competitive and obsessed with his standing in the annual analyst ratings, Reingold is haunted by the more popular Grubman, who becomes fuel for wracking self-doubt and ultimately affirmation.

Reingold says he was a grind who always stuck to his principles. Meanwhile, Grubman was busy embracing numerous conflicts of interest. Grubman used his shameless stock promotion to curry insider contacts before dishing news to clients, says Reingold. And with information being the most valuable currency on Wall Street, Grubman trounced Reingold in the hugely important analyst rankings.

Grubman was eventually fined $15 million, less than half his exit package, and banned from the securities industry amid charges he slanted his stock ratings to win personal favors and banking deals for his firm,

Citigroup

(C) - Get Report

.

It turns out that both Reingold and Grubman had middle-class upbringings, Reingold in Buffalo, N.Y., and Grubman in suburban Philadelphia. Reingold studied Middle East politics at Princeton. Grubman studied math at Boston University, though he famously embellished his history by claiming he went to MIT.

Reingold took a budget analyst job at MCI in 1983. It was the eve of the federal order to break up Ma Bell's phone monopoly and the beginning of telecom's transition from a sleepy utility industry to eventually a sector of giants battling fast-growing, wildly speculative upstarts.

Fitting their personalities, Grubman championed the acquisitive Mississippi-based WorldCom. Reingold preferred the staid local phone companies, or regional Bells.

Reingold is at his best when he's telling his own story.

Some of the best parts involve his salary negotiations. He stops disclosing actual dollar amounts when he hits the millions, but he's forthcoming on how he was able to double his previous pay rates.

Probably the most telling episode in Wall Street's elevation of analyst to star is a $1.5 million pay error in Reingold's favor. After negotiating yet another astronomical raise, he reviews the numbers and discovers $1.5 million extra. He tells his boss and a new contract is drawn up to exclude the extra pay, though Reingold laments that no one congratulates him on his admirable honesty.

Unfortunately, Reingold doesn't exactly deliver on his promise to reveal the inner sanctum of Wall Street banking. The times when he's actually asked to "go over the wall," to meet with investment bankers working on deals, don't quite turn out to be as juicy as one might hope. His role is largely limited to making presentations about a company's value, its addressable market, its strengths and weaknesses.

One begins to wonder if Grubman couldn't write a better tell-all book on how the real dirty deals get done.

As ethical lines blur amid the market mania, Reingold held even tighter to his belief in numbers. He took comfort knowing that his research was based on empirical science. Like many in his field, he had a strong faith in financial models. Using spreadsheets, he could extrapolate reasonable conclusions as long as the numbers provided by the companies were correct.

Notably, Grubman used the same numbers to draw his own conclusions. Yet both analysts, and the rest of the world, were totally blindsided when the numbers turned out to be phony.

Even though Reingold was lied to by executives early in his career, he's still crushed to discover that bookkeeping at the big telcos like WorldCom and

Qwest

(Q)

fudged billions of dollars. Dispirited and angry, he takes early retirement in 2003.

Though he waits until the end of the book to say it, you are already reading it between the lines early on. "I'd come in as an idealist and left a cynic," Reingold tells you.

It's difficult to imagine how Reingold navigated his way to upper echelon of street pros without sacrificing his

naivete

. But because he failed to apply a cynical lens to his analysis, he was blind to world right below his nose.

In Reingold's soul-searching conclusion, he admits that he should have blown a few whistles on insider corruption. But given his mind-blowing salary, his silence appears bought.

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