Pure greed had Wall Street pirates ready to plunder
Don Bauder
October 18, 2002
How do you spell "swindle?"
IPO/OPM.
The initial public offering, or IPO, craze of the late 1990s was not lunacy. It was piracy – criminal piracy, in my judgment. It is increasingly clear that it was essentially bribery by Wall Street firms using other people's money, or OPM.
And it epitomized the late 1990s, because it represented pure greed by all the key players: Wall Street was using manipulated stock runups to grease the palms of chief executives who would then steer their companies' investment banking business Wall Street's way.
Companies permitted their stocks to be issued at artificially low prices so their own insiders could get filthy rich in those rigged runups.
The losers: small investors and the companies that netted far too little from the initial offerings of their stocks.
There are several state, federal and congressional investigations into various aspects of IPO/OPM now under way. Massachusetts has asked New York to pursue a criminal investigation of certain angles of IPO/OPM.
In 1999, the average IPO soared 70 percent the first day – prima facie evidence of manipulation, in my opinion.
We now know how IPOs were manipulated. They were laddered: One firm would allot X number of shares of a hot offering to another firm at one price; the next firm would get its shares at a higher price, and on and on up the spiral, as government investigations have revealed.
This is blatant, criminal manipulation, but thus far, has not been treated as such.
But it's just the start. We also know that Wall Street firms were engaged in "spinning," or doling out shares in hot IPOs to the chief executive officers of companies from which the Wall Street houses expected to get investment banking business.
Last month, New York State Attorney General Eliot Spitzer filed a lawsuit against five telecom executives, alleging that they were given shares of hot IPOs that they dumped quickly for a fat profit, and then steered their investment banking business to the Wall Street firm providing the largesse.
The Wall Street firm, the Salomon Smith Barney unit of Citigroup, was not charged, but the matter is under investigation.
If the quid pro quo can be proved, the activity will essentially constitute a bribe by the Wall Street firm, employing OPM – in this case, the money that the company going public was forced to leave on the table in the phony runup.
Unfortunately, some legal scholars think the quid pro quo will be difficult to prove.
As part of the investigation, Spitzer charges that analysts at the firm puffed up their research – putting lipstick on a pig, in Wall Street parlance. Spitzer has proof of internal conversations indicating such deceit.
Congressional investigators have learned that one firm dealt out hot IPO shares to executives of 21 companies that were in a position to reciprocate by giving the firm juicy investment banking business.
In these various investigations, the Wall Street firms and lawyers for the chief executive officers and lawyers for the CEOs' companies are all professing innocence, of course.
And at this point, investigators have not connected all the dots.
But they have connected enough of the dots for the generalization to stand: IPO/OPM was perhaps the most venal scandal of all the Wall Street/corporate shenanigans of the late 1990s.
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Union-Tribune library researcher Danielle Cervantes assisted with this column.
Don Bauder: (619) 293-1523; don.bauder@uniontrib.com |
