KT, this is from the folks at Prudent Bear, it makes me wonder how funds hire their managers. Didn't you used to work for Alliance?
"A company plunges inexorably toward bankruptcy, yet an all-star fund manager with a sterling 20-year track record continues to buy aggressively all the way down: Conspiracy, stupidity, or simply another manifestation of the all-pervasive belief in the “Greenspan Put”, the notion that somehow, no matter irrational the action appears, if it’s big enough or the contagion effects bad enough, the Fed will always “do something” to turn things around regardless of the broader signals it sends out to the market.
We guess the latter. The whole saga of Enron has turned out to be one big tangled web of corruption, deceit, and crony capitalism. Hence, a good conspiracy theory is just the sort of thing that the press would love to uncover. This kind of revelation would also prove highly convenient Enron’s army of disgruntled shareholders, who under these circumstances would have even greater recourse to legal redress and compensation. But there is an equally plausible, albeit less sexy, explanation to account for Mr. Harrison’s apparently misguided bet: it turns on the issue of moral hazard, the belief that somehow, no matter how bad things looked, St. Alan and the cavalry would ride to Enron’s rescue, as they had so many times in the past in similar other circumstances. The result is a financial system heavily skewed toward reckless speculation of the sort that recently led to a $328 million loss on the part of the Florida State Pension Fund – among the largest losses suffered by any Enron shareholder.
As Enron's stock plunged into oblivion, Alliance Capital and its star money manager, Alfred Harrison, inexplicably bought more and more Enron shares for the Florida state pension fund, according to a report from last Sunday’s New York Times. The worse the news, the more Mr. Harrison bought. Shortly after Jeffrey K. Skilling resigned as Enron's chief executive last August, Mr. Harrison bought $26.1 million worth of Enron stock for around $36 a share. After Enron announced in October that it had lost $1.2 billion from side partnerships and the Securities and Exchange Commission opened an investigation, Mr. Harrison bought a further $7.1 million worth of stock at $22 a share. Even with the ousting of the now infamous chief financial officer, Andrew S. Fastow, a warning bell did not go off in Harrison’s head; he bought yet an additional $16.1 million shares ranging from $16 to $12. Finally, after Enron announced last November that it had overstated profits, Mr. Harrison bought a further $12.1 million worth of the faltering company at $9 a share. Even with less than two weeks before filing for bankruptcy, Mr. Harrison was still buying like a dervish, before finally bailing out at 28 cents per share.
Leaving aside the Wall Street old jokes about “averaging down”, the question is why? In retrospect, it is clear that Mr. Harrison's purchases were such a wrong-way bet that many people suspect that it was more than just a terribly misguided investment decision; they have darker suspicions. Much speculation centres on Frank Savage, an Enron board member who was also an Alliance executive and who, along with Mr. Harrison, is a member of the Alliance board. The New York Times report poses the question as to whether Mr. Harrison's decision to purchase more and more Enron shares was because he was involved in some sort of covert share support operation. Were their side deals? All of these allegations are now being investigated by Florida’s state attorney general, Bob Butterworth."
Larry |
