The Five Dumbest Things on Wall Street This Week

Screaming bloody Murdoch; United they fall; Ma gets Bell rung; Ex-Scrushy-ating detail; focusing like a laser beam.
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1. Sitting on the Murdoch of the Bay

Hey, kids! Want to know how to get Rupert Murdoch mad? Really mad?

It's easy to get Murdoch's goat, as we learned this Wednesday. That's when the chairman and CEO of the

News Corporation

(NWS) - Get Report

multimedia conglomerate submitted to a question-and-answer conference call with reporters following the release of fiscal first-quarter financial results for News Corp. and its subsidiary

Fox Entertainment Group

(FOX) - Get Report

.

First you have to remember that Rupert's son James was on News Corp.'s board for three years, and his son Lachlan has been on the board for seven. Then you have to remember that after an exhaustive one-month search scouring the earth for qualified candidates, James was named chief of

British Sky Broadcasting

(BSY)

, of which News Corp. is a major shareholder.

Then all you have to do is suggest that there might be the teeniest nepotism problem at News Corp.

We assume Murdoch is an intelligent guy -- someone who can see all the complexities and pitfalls involved with a family that overlaps with a business. But he doesn't acknowledge the awkwardness of the situation in the least. And maybe that's because no one comes out and says, "What kind of special treatment are your kids getting? And what kind of special treatment will they give their dad?"

Instead, everyone dances around the issue by using the six-syllable all-purpose euphemism "corporate governance." And Murdoch starts talking about corporate governance with the viciousness of a mother bear defending her cubs.

So in response to a reporter's question about James and BSkyB, Rupert said Wednesday, "Our corporate governance is a model to everybody. And I'll defend it in front of them. ... It's a hungry press out there looking for controversy ... rather like you are."

This from the publisher of the

New York Post!

Blaming the press for rabble-rousing!

News Corp. Governance
The sons also sit

And when another reporter asked about the potential destabilization of James' reign at BSkyB, Murdoch -- after telling the reporter he was "talking nonsense" -- veered off the subject of BSkyB back to the corporate governance thing.

"As for corporate governance, I challenge you to show anything wrong with the corporate governance -- with the committees, the audit committees. There have been things said, like in The Guardian today, that we might divert revenues, which are outrageous libels. We have never taken a penny out of it. Nor have any of these so-called investors ever put a penny into it. It was developed entirely by us, on our backs. And other people are now buying shares in it. They're very welcome to, and make money in it. ... All shareholders are treated equally and always have been."

Yes, Rupert, there are some worries about equal treatment of shareholders. But let's not forget about the equal treatment of non-Murdochs as well.

2. United Flight No. 86 Is Now Bulletin Boarding

If there's one thing investors seem to have an infinite capacity for, it's blowing millions of dollars on speculative, sure-lose stocks.

This week's example: United Airlines parent

UAL

(UALAQ)

.

As ace aviation reporter Eric Gillin

reported earlier this week, UAL's shares zoomed higher following United's announcement of a slight third-quarter operating profit. United's shares, which have ranged between 43 cents and $4.93 over the past year, went from $1.17 to as high as $1.78 in a single day. We figure that collectively people have spent more than $60 million on this stock in the five trading days ended Wednesday.

Which is great. Except for the fact that UAL is operating under bankruptcy protection. And, by all accounts, this hot stock will be eliminated if and when the debt-ridden UAL emerges from bankruptcy.

In other words, UAL stock has no fundamental value. It's worthless. As in, worth nothing. Nada. Zip.

Bupkes.

The retirement money wasted on this stock may be your own.


Of course, there's no law that says prebankruptcy stock has to go to zero when a company emerges from Chapter 11. So we called up a longtime observer of corporate bankruptcies -- Peter A. Chapman, president of Bankruptcy Creditors' Service of Fairless Hills, Pa. -- to see whether he could come up with any examples of shareholders exiting Chapter 11 unimpaired.

He could. The classic example, he says, is Texaco, now

ChevronTexaco

(CVX) - Get Report

. Back in 1985, a jury ruled the oil company had to pay Pennzoil $11 billion in damages related to Texaco's breakup of a merger deal between Getty Oil and Pennzoil. With Texaco appealing the case and Pennzoil fighting to collect its judgment, Texaco filed for bankruptcy in 1987 to hold off paying up. The companies agreed to a $3 billion settlement late that year.

"By far, most shareholders are wiped out under any plan," says Chapman. Exceptions like Texaco, he says, are "single-issue cases where the business is not fundamentally broken."

And where does that leave UAL?

Chapman laughs. "I would strongly suggest that the value of United is less than the amount of total debt that the company has to satisfy," he says. "It's so screwed up, and it's an airline."

3. You Can Wring Ma Bell, Bell, Bell, Wring Ma Bell

We never thought we'd feel sorry for

AT&T

(T) - Get Report

. Or for telemarketers, for that matter.

But today we're feeling sorry for both.

In a world where there's so many tough choices and gray areas -- abortion rights, war in Iraq and underfunded pensions, to name a few -- we're suspicious of any issue on which legislators can achieve speedy near-unanimity.

Folks in Washington, D.C., can spend years without seriously attempting to solve worsening, widespread, basic problems facing Americans, like skyrocketing health care costs and looming Social Security shortfalls.

Ringing Up Some Fines
Uncle Sam scolds Ma Bell

And yet Congress is maddeningly quick when it's time to take self-righteous aim at easy targets like telemarketers.

In late September, you'll recall, the House of Representatives voted 412-8 to restore the Federal Communications Commission's do-not-call registry. Hours later, the Senate piled on with a 95-0 vote. The list, of uncertain constitutionality, was signed into law not long afterward.

Which brings us to Monday, when the FCC announced that it proposed fining AT&T $780,000 for placing 78 calls to 29 different consumers who allegedly had told AT&T not to call them with telephone solicitations. "This is the Commission's first major Do-Not-Call enforcement action," the FCC said in a press release.

But what the FCC didn't make clear in its press release -- and which wasn't clarified in the first stories that hit the wire Monday -- was that this wasn't an alleged violation of the regulations that Congress so patriotically approved last month. Rather, what's at issue are FCC rules ordering individual companies not to call a consumer who specifically requests to receive no further calls from that company. And those rules have been in effect, in one form or another, for a decade.

So did Ma Bell do such a terrible thing? Maybe they did. But given how many phone calls AT&T must be making these days -- heck, it's a phone company -- we wouldn't be shocked if 78 of them went to the wrong number. We understand the value of deterrence in law enforcement and regulation. But we don't think the inconvenience caused by someone having to answer the phone, listen for 10 seconds, say, "Stop calling me, stupid," and slam down the receiver is worth $10,000 plus legal expenses.

AT&T, for the record, says it's confident it can persuade the FCC there weren't 78 do-not-call violations. Plus, AT&T raises the possibilities that the complainants may not have actually told AT&T not to call them, and that it may not have been AT&T that made the offending phone calls.

Take One for the Company
Wait, take a few more

4. The 10 Habits of Highly Effective Alleged Fraud Ringmasters

When we read through the indictment, released Tuesday, of former

HealthSouth

(HLSH)

CEO Richard Scrushy, we didn't find much juicy stuff.

OK, OK. We did learn that it costs more to armor-plate two late-model GM (GM) - Get Report sport utility vehicles ($90,000) than it does to buy them ($79,000).

But though the indictment laid bare the spending habits of a nouveau riche health care executive, the document had little of the narrative and drama we've come to expect from these bust-era compilations of allegations of misdeeds. No smoking-gun emails. Few day-by-day chronicles of nefarious conspiracies allegedly at work.

Except for one little section: paragraph 38 on page 11, a list of the tactics the government alleges Scrushy employed in a conspiracy to inflate HealthSouth's net income by $2.7 billion over seven years.

Scrushy, says the government, caused HealthSouth senior officers in the conspiracy to sign and file false certifications and reports by


  • Offering them financial and other inducements;
  • Appealing to their loyalty to ... Scrushy, to HealthSouth and to its employees;
  • Reminding them that they had already committed illegal acts;
  • Stating that the company was making money and had a bright future;
  • Suggesting that the falsity in the reports could be reduced over time;
  • Suggesting that there was a "plan" to take care of the fraud;
  • Suggesting that they could get away with it;
  • Reminding them of the adverse consequences they and others might suffer if they abandoned the scheme;
  • Reminding them of the benefits that would accrue if they continued the scheme; and
  • Suggesting that continuing with the scheme was the "right" thing to do.

The promises. The lies. The threats. The wheedling. As we read this paragraph, we can picture these meetings so clearly, it's like we're in the same room. It's almost a Harvard Business School crib sheet for how to get the management team to buy in to a financial conspiracy. It's cinematic. We can't wait for the TV movie.

5. Bye, Bye, Miss American Technology

Finally, an update from

American Technology Corp.

(ATCO)

, the developer of laser-pinpointed audio systems that's been on our radar screen of late.

As we reported in late September, the company's newest CEO left the company less than eight months after he arrived to get the company out of its research and development stage into the stage that involves actually selling things and making money.

Now we learn that ATC's top financial executive, Chief Accounting Officer Renee Warden, is resigning to work full time at

e.Digital

(EDIG)

, a company located in the same building as ATC and

founded by ATC Chairman Woody Norris.

Should we be worried?

Different Rat Race ...
... same building

No, says an ATC spokesman. "The company is really focusing, after years of research and development, on manufacturing and production of our audio technologies," he says. "That's the focus that needs to be applied, and that's what's happening here."

So with the old CEO and the chief accounting officer out the door -- not literally, we guess, in Warden's case -- who'll be signing the financial statements for the fiscal year ending Sept. 30?

Maybe interim Chief Accounting Officer Carl Gruenler, the company's vice president of military sales, says the spokesman. Or maybe Norris.

As ATC focuses on manufacturing and production, we'll let you know if the company ever actually makes money. That's the focus that needs to be applied, and that's what's happening here.