Finally, he asked Jonathan and his parents each to write a few paragraphs describing their feelings about how the S.E.C. was treating Jonathan.
* * *
Jonathan's statement -- a four-page e-mail message dashed off the night that Marino asked for it -- was so different in both tone and substance from his parents' that it inspired wonder that it could have been written by even the most casual acquaintance of the other two. It began:
"I was going over some old press releases about different companies. The best performing stock in 1999 on the Nasdaq was Qualcomm (QCOM). QCOM was up around 2000% for the year. On December 29th of last year, even after QCOM's run from 25 to 500, Paine Webber analyst Walter Piecky came out and issued a buy rating on QCOM with a target price of 1,000. QCOM finished the day up 156 to 662. There was nothing fundamentally that would make QCOM worth 1,000. There is no way that a company with sales under $4 billion, should be worth hundreds of billions. . . . QCOM has now fallen from 800 to under 300. It is no longer the hot play with all of the attention. Many people were able to successfully time QCOM and make a lot of money. The ones who had bad timing on QCOM, lost a lot of money.
"People who trade stocks, trade based on what they feel will move and they can trade for profit. Nobody makes investment decisions based on reading financial filings. Whether a company is making millions or losing millions, it has no impact on the price of the stock. Whether it is analysts, brokers, advisors, Internet traders, or the companies, everybody is manipulating the market. If it wasn't for everybody manipulating the market, there wouldn't be a stock market at all. . . ."
* * *
Anyone who paid attention to the money culture could see its foundation had long lay exposed, and it was just a matter of time before the termites got to it. From the moment the Internet went boom back in 1996, Web sites popped up in the middle of nowhere -- Jackson, Mo.; Carmel, Calif. -- and began to give away precisely what Wall Street sold for a living: earning forecasts, stock recommendations, market color. By the summer of 1998, Xerox or AT&T or some such opaque American corporation would announce earnings of 22 cents a share, and even though all of Wall Street had predicted a mere 20 cents and the company had exceeded all expectations, the stock would collapse. The amateur Web sites had been saying 23 cents. Eventually, the Bloomberg News Service commissioned a study to explore the phenomenon of what were now being called "whisper numbers." The study showed the whisper numbers, the numbers put out by the amateur Web sites, were mistaken, on average, by 21 percent. The professional Wall Street forecasts were mistaken, on average, by 44 percent. The reason the amateurs now held the balance of power in the market was that they were, on average, more than twice as accurate as the pros -- this in spite of the fact that the entire financial system was rigged in favor of the pros. The big companies spoon-fed their scoops directly to the pros; the amateurs were flying by radar.
Even a 14-year-old boy could see how it all worked, why some guy working for free out of his basement in Jackson, Mo., was more reliable than the most highly paid analyst on Wall Street. The companies that financial pros were paid to analyze were also the financial pros' biggest customers. Xerox and AT&T and the rest needed to put the right spin on their quarterly earnings. The goal at the end of every quarter was for the newspapers and the cable television shows and the rest to announce that they had "exceeded analysts' expectations." The easiest way to exceed analysts' expectations was to have the analysts lower them. And that's just what they did, and had been doing for years. The guy in Carmel, Calif., confessed to Bloomberg that all he had to do to be more accurate on the earnings estimates than Wall Street analysts was to raise all of them 10 percent.
A year later, when the Internet bubble burst, the hollowness of the pros only became clearer. The most famous analysts on Wall Street, who just a few weeks before had done whatever they could to cadge an appearance on CNBC or a quote in The Wall Street Journal to promote their favorite dot-com, went into hiding. Morgan Stanley's Mary Meeker, who made $15 million in 1999 while telling people to buy Priceline when it was at $165 a share and Healtheon/WebMD when it reached $105 a share, went silent as they collapsed toward zero.
Financial professionals had entered some weird new head space. They simply took it for granted that a "financial market" was a collection of people doing their best to get onto CNBC and CNNfn and into the Heard on the Street column of The Wall Street Journal and the Lex column of The Financial Times, where they could advance their narrow self-interests.
(From a very amusing, well written article on the New York Times On-line site. Nineteen pages, but a must-read.)
February 25, 2001
Jonathan Lebed: Stock Manipulator, S.E.C. Nemesis -- and 15 years old
nytimes.com
(Free registration required)
By MICHAEL LEWIS |
