Bill Wexler's Profits of DOOM Message Board

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Strategies & Market Trends : Bill Wexler's Profits of DOOM

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To: Cosmo Daisey who wrote (2522)	9/9/1998 3:50:00 PM
From: AHM	Read Replies (1) of 4634

I knew Ray Dirks very well. The case was not exactly as you posted it. He and I used to have drinks in the building where we worked (7 Dey Street - Sakeles Restaurant) and we all knew what he was up against. Ray was a young and highly successful broker/analyst specializing in insurance with a huge institutional following. One day a well placed employee of a major insurance company (I no longer recall its name) who knew that Ray had strong ties to the company came to his office after normal work hours with documents that provided absolute proof that the company had created false computer runs with many millions of dollars of revenue from policies that didn't exist. It was one of the largest frauds ever perpetrated up to that time by a publicly held company. This visit was the worst thing that could have happened to Ray since he had a huge institutional following which he had persuaded to invest in this company and had to make fast decisions. There was no way he could win. If he went directly to the SEC he knew he would have lost his reputation and his institutional following (as well as his career) as soon as the news was released. So he took a gamble, and quietly called the institutions who had purchased on his recommendation and told them to sell right away in the (vain) hope that somehow he could successfully defend himself against inevitable SEC inquiry regarding his role in this affair. After his customers had divested themselves of the stock he went to the SEC. Once the scandal broke he found himself up on charges for insider trading advice which was to the disadvantage of the investing public at large and ultimately lost his brokerage license and everything else that mattered. Of course his institutional customers loved him for what he did - but none of them would or could help him. They faced their own problems in dealing with the issue of the sales they had made as a result of insider information obtained from Dirks. This issue does not relate to short selling advice. It relates to the responsibilities to the public of a person who is given explosive insider information and, specifically, the terrible dilemma an influential broker faced when a surprise visitor presented him with proof of fraud immediately after he had sold millions of shares in the company to his best clients. The issue for Ray Dirks was clearly whether his first obligation was to the public or to those who purchased the stock on his recommendation. I hope that you or anybody else is never confronted with such a terrible lose-lose decision which, no matter how you act, destroys your livelihood, reputation and career.

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