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The Five Dumbest Things on Wall Street This Week

Runaway growth at HSBC; Applied Digital's chip of fools; confidence game at DGIT; idol dreams on Wall Street; First Boston or Worst Boston?

1. Who Says Americans No Longer Idolize Wall Street?

Most of the time, people come to Wall Street to find their fortune. But this week, they came for the fame.

See, for some reason we never bothered to figure out, the producers of the

American Idol

TV series decided to hold their New York-area open auditions for the show's second edition at the

Regent Wall Street, a hotel standing a mere block away from the

New York Stock Exchange

. And the Five Dumbest Things Research Lab, for that matter.

So in a public spectacle of demand that would make a publicist for

Krispy Kreme Doughnuts

(KKD)

moist with envy, hopeful auditioners lined up as early as Tuesday for tryouts scheduled to start Thursday morning.

Hey, we've all got our dreams.

In the interests of scientific investigation, we at the Lab decided Wednesday to chat with some of the early birds at the head of the line. What, we wondered, do the Future American Idols of America (FAIOA) think of Wall Street? What could these artistically ambitious newcomers tell us about the materialistically ambitious veterans who've populated the Street for years? And were there any former Internet analysts in line?

Well, the answer on former brokerage analysts was a no. But in fact, it turned out that the first entrant in line, 24-year-old Tricia Brandsen, was formerly an accountant at a

Cumulus Media

(CMLS) - Get Cumulus Media, Inc. Class A Report

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station in Mobile, Ala. Brandsen, who said she dropped the world of finance to pursue a singing career, found it "kind of ironic" that pursuit of her singing career had brought her back to ... the world of finance.

Mony, Mony
Baez: Bugging out

Farther on down the line, we met Maria Baez, a pleasant young woman from the Bronx. Up until Wednesday morning, when she got fired for not showing up at work, she was employed by Mony. No, not

Mony

(MNY)

the financial services company, but Mony

the local clothing retailer. Before lining up Tuesday night, Baez said her closest brush with Wall Street had been shopping at the

Nine West store over on Broadway. So now that she's finally spent some time on Wall Street, what does she think of it?

"There's a lot of water bugs," said Baez. "Yeah, there's a lot of those. I killed, like, five."

High Hopes
Lawson: Choked up

Finally we chatted with Richard Lawson, a chiropractor from Vernon, N.J., who was holding a place in line for his 17-year-old daughter. Like many parents saving for their children's college education, Lawson hasn't done too well in the stock market of late. But the cheery chiropractor said he was happy to forgo the money he would have earned at the office had he not chaperoned his daughter. And it's not just the fostering-her-career angle. "It occured to me," said Lawson, "I might be able to get close enough to

Morgan Stanley

(MWD)

to choke my broker."

Hey, we've all got our dreams.

2. So, the Rate on That CD Will Be 1% or 3%. You Get the Idea.

For weeks we've been puzzling over the online advertisements for

HSBC

(HBC)

Bank.

Now we know why.

You've seen the ads, too. In particular, we're thinking about the one with the picture of a cute little baby looking up at something we can't see. "She'll grow four times in size," reads the ad. "So will your responsibilities."

Yes, that seemed like reasonable advertising claims to us. Until we finally raised ourselves out of our torpor far enough to actually do some research.

The first place we started with was the baby. What, we wondered, was the size of that baby anyway?

Well, judging from the picture, she's able to raise her head. That would make her at least about 2 months old. According to

a chart published by the Center for Disease Control, that would mean this girl is about 22 inches tall.

Hmm. Twenty-two inches tall, growing four times in size. Plug that girl's height into the ol' slide rule, multiply it by four and we get ... 88 inches.


Yes, 88 inches. As in 7 feet 4 inches tall.

So all of a sudden we're wondering what the point of the HSBC ad is. Is the idea supposed to be that you've given birth to a future member of the New York Liberty, a sweet little baby for whom you'll have to pay extra on clothes at the women's Tall and Big shop?

We called up HSBC to ask.

The average baby will grow three to five times in height, says a spokeswoman for the bank. The advertisement, she says, "is meant to encourage people to think about the growth in their responsibilities and to plan for their child's long-term needs." That four-times figure, she says, "is not meant to be a literal statistic."

Well, that's a reassuring remark to hear from a bank. When we get our next monthly statement, we'll try to remember that the closing balance isn't meant to be a literal statistic.

3. It Could Have Been Worse. Someone Could Have Bought a Dog Umbrella Stand With All That Money

What with squeaky-clean corporate being the latest obsession, the proxy statement issued Tuesday by

DG Systems

(DGIT)

takes a refreshingly big-picture approach.

The ticklish issue at hand here is what to do about the company's chairman, Scott Ginsburg, who joined the audio/video distribution system company in December 1998.

Less than a year after Ginsburg assumed the posts of chairman and CEO at DG Systems, a bit of unpleasantness reared its ugly head. Namely, the

Securities and Exchange Commission

accused Ginsburg of misappropriating material nonpublic information from Evergreen Media, the company he previously headed, by passing along stock tips to his brother and/or father about two other companies of which he had knowledge.

In April of this year, a jury found Ginsburg guilty of tipping; in July, a judge imposed a $1 million civil penalty on Ginsburg. He is appealing.

In the meantime, what's a fair-minded board to do? "Where an officer or director of a public company has been found to have violated the federal securities laws, it is typical for the officer or director to resign his position," notes the DG Systems proxy statement. But in this case, says the DG Systems board, it's inclined to give Ginsburg a second chance.

While board members favor keeping Ginsburg on as chairman -- he ceded the presidency in 1989 -- directors are bouncing the idea off the shareholders. At the company's Dec. 4 shareholder meeting, shareholders will cast their ballots in a nonbinding vote of confidence in Ginsburg. If 33% of shareholders vote against the proposal, the board intends to ask for Ginsburg's resignation. Ginsburg, by the way, plans to vote his 41% stake in the company as a vote of confidence in Scott Ginsburg.

Though we ourselves would probably vote Ginsburg out of there faster than you can say "

ImClone

(IMCL)

," the board makes a plausible argument for keeping him on. Among other mitigating circumstances, the board points out that the presiding judge specifically rejected the SEC's argument that Ginsburg deserved an injunction restraining future conduct.

Of course, the board does admit elsewhere that in determining whether Ginsburg's continued service is in the interest of DG Systems stockholders, the board did

not

consider whether another person would better serve DG Systems as chairman.

That's a question worth entertaining. According to a table in the proxy statement, DG Systems shares lost 80% of their value in the three years after Ginsburg showed up. Relevant Nasdaq indices, in comparison, fell 13% and 18%.

Forget the insider trading. A plummeting stock is the worst crime of all.

4. Don't Have a Chip on Your Shoulder. Place it Subdermally in the Fleshy Portion of Your Upper Arm.

Congratulations to Palm Beach-based

Applied Digital Solutions

(ADSX)

, which, like all of our favorite technology companies, is based on the east coast of Florida.

The company announced Tuesday that the Food and Drug Administration had ruled that its subdermal VeriChip is not a regulated medical device if it's used for security, financial and personal identification applications. That clears the way for Applied Digital to continue marketing its subdermal VeriChip.

What, you might ask, is a subdermal VeriChip? Why, it's a device about the size of a grain of rice that gets inserted under the skin. And stays there for years. If you pass a proprietary scanner over the VeriChip, it emits a unique verification number.

And what does one do with a VeriChip? Why, the possibilities are endless. Though each time we try to start thinking of what they are, we get a very queasy feeling.

But you may not. In that case, you should know that Applied Digital says all "qualified" shareholders will soon be able to get "chipped" with an introductory savings of $50.


With the stock now trading at 40 cents a share -- down from a $2.40 spike in May -- that means a round lot of 100 shares of Applied Digital will cost around $40, before commission. That's $10 less than the "chipping" savings.

If you must get a chip, get it cheap.

5. Suisse Cheesy

You know, we read all the way through the complaint that the Massachusetts Securities Division filed on Monday against Credit Suisse First Boston. We thought all these allegations of securities analysts under the thumb of fee-hungry investment bankers would be kind of amusing, in an underbelly-of-Wall-Street kind of way. We were wrong.

After plowing through the 20-page complaint and all 18 appendices, all we at the Lab can say is we're depressed. If you want to be depressed, too,

read it yourself.

More compellingly than

a similar complaint filed by the New York State Attorney General against

Merrill Lynch

(MER)

, the CSFB complaint tells a tale of compromised research, deceived investors, and a boatload of people saying one thing and meaning another.

Any page at random is enough to make the little guy weep. Like the internal email regarding the Securities Industry Association's move last year to prohibit the linking of analysts' compensation to investment banking deals. "To assume that the SIA statement is going to upset our applecart is incorrect," wrote one CSFB exec at the time. "This is about appearance and structure rather than substance," wrote another, in response to a related discussion about having analysts not reporting to bankers.

In a statement this week, CSFB complained that the Massachusetts complaint could "delay and undermine" its current "specific, concrete plan" to separate investment banking and research. CSFB also says Massachusetts mischaracterizes its past compensation system for analysts.

We're all for separating banking from research. But, uh, wasn't that supposed to be done last year?

Judge for yourself.