SILENCE STILL GOLDEN By CHRISTOPHER BYRON
November 1, 2004 -- MARTIN Sheen has clearly been okay as "The West Wing"'s President Josiah Bartlet. But if you want my opinion, the one they should have gone for is William Donaldson — the only man alive about whom it may earnestly be said: He was born 35 years of age, and "Distinguished" is his middle name.
Certainly a starring role in TV primetime would have turned out better for Donaldson than the mess he's stumbled into instead. Though he is easily the handsomest man in the Bush Administration (and without question has its best-looking and most charming wife), Distinguished Bill Donaldson has been having an absolutely awful time of it in his late-career role as America's junkyard dog of Wall Street.
For the past two years, Distinguished Bill (hereinafter referred to simply as D.B.) has served as chairman of the U.S. Securities and Exchange Commission — from which perch he has been charged with the task of watching over and protecting, like Cerebrus, the snarling two-headed dog of Hades, the integrity of the U.S. capital markets. And mostly, the result has boiled down to a lot of bark and no bite.
The latest example came just last week when D.B. and the four other members of the Commission voted 5-0 to gut a collection of 70-year-old SEC rules that prevent companies from talking up their stock prices prior to securities offerings.
There are a number of things to be said about this vote, and few of them are flattering. But here goes anyway, for this is probably the worst, most wrongheaded, backwards, counterproductive, foolhardy and brain-dead decision the SEC has ever made regarding anything.
As such, repeal of the so-called quiet period rule — especially in the way the Commission proposes to do it — is destined to haunt the memory of Distinguished Bill until his very name eludes recall, even as generations of those as yet unborn genuflect before the right of the stupid and the greedy to be stolen from by the richer, the greedier and the smarter.
An SEC flack claimed last week that liberalizing the rule would give investors access to important information that had previously been denied to them. Moreover, the new rules that will replace the old ones seem crafted to assure folks that only honest, trustworthy companies — defined as "well-known, seasoned issuers" of securities — will be allowed free and unfettered access to the megaphones of the media in order to talk up their stock offerings.
What's a "well-known, seasoned issuer" of securities?
ACCORDING to the Commission, it's any public company that already has registered stock with a market value of more than $700 million in the hands of the public, or has sold at least $1 billion worth of registered debt to the public over the previous three years.
The idea seems to be that by restricting the new quiet period rules to such companies, the Commission will automatically be barring all those sneaky, underhanded, swindlers from the OTC Bulletin Board and the penny stock market from enjoying the same benefits.
And what exactly will be those benefits? Under the new rules, "well-known, seasoned issuers" will be allowed to promote their upcoming stock offerings — and thus their own stock prices — in just about any way imaginable, from arranging for CEOs to give interviews to friendly reporters on the eve of the offering, to running entire stock-touting advertising campaigns on radio and television.
This is smart?
I read something like that and I want to bang my head against a wall. Are Americans that brain-dead that we cannot remember what happened in this country almost literally the day before yesterday? Does the name Enron ring a bell? How about WorldCom? Or Winstar? Or Adelphia? Or Qwest Communications? Or Tyco International?
These are just some of those big, "well-seasoned" corporate issuers that D.B. seems to think are so trustworthy. But seasoned in what? Fraudulent bookkeeping? Illegal offshore accounts? Conspiracy? Market manipulation? Price rigging? Lying? Cheating? Financial fraud and stealing?
THE idea that the SEC would vote 5-to-0 for this moronic reform even while the CEO crime wave of the 1990s is still sluicing through the nation's courts, is simply stupefying.
And when it comes to the notion that the corporate riff-raff from the penny stock market cannot be trusted to make honest public statements about their stock offerings, well, what can one say?
If the penny stock market is so terrible (and it certainly is), then how come the SEC has suspended trading in just nine such stocks since January, versus 21 such suspensions during the same period of 1999 when Arthur Levitt was finishing up his own final full year as an SEC chairman?
EVEN the disgraced Harvey Pitt has a bet ter track record than D.B.'s when it comes to penny stock fraud.
In recent weeks, this column has devoted considerable space to documenting, in great detail, a whole new multi-billion-dollar wave of penny stock abuse involving trading in unregistered "Reg. D" stock. Yet the SEC hasn't suspended trading in the shares of even a single such company.
One such outfit, which bears the name CDC Systems Inc. and operates out of a postal mail drop in New Mexico, ginned up an astonishing billion-dollar market value for itself last month by issuing a series of wildly over-hyped and misleading press releases about its future in the natural gas business.
In the wake of challenges to the accuracy of its claims by The Post and others, the company has now issued four new press releases either "updating" or "correcting" the earlier lies, omissions and misstatements. Thus far, these include:
* The claiming of future revenues based on a non-existent contract with a make-believe customer.
* The claiming of $4.1 million in non-existent balance sheet assets.
* The claiming of grossly inflated inventories by acquiring $50,000 worth of compressor pump parts at an auction, then marking them up three weeks later to as much as $800,000 without disclosing that the markup was based on a theory of their so-called "replacement value."
These aren't mere misstatements or omissions that can be cured by the issuance of a round of clarifying press releases, In my Constitutionally-protected opinion, they are evidence of a group of penny stock fraudsters getting caught red-handed and trying to wriggle out of the consequences.
Some of the key players in this little drama are well known to the SEC already. The company handling CDC's back office operations for Wall Street — Holladay Stock Transfer — has had at least one penny stock run-in with the law already. And one of the main stock touts spreading lies about the company, a Florida promoter named Charles T. Tamburello, was charged last year by the SEC for similar activities on behalf of a different penny stock more than a year ago.
Distinguished Bill Donaldson is no dummy, and he knows the ways of Wall Street as well as any man alive. He was the name-partner and co-founder of the Donaldson, Lufkin and Jenrettee investment firm more than four decades ago; he's been the chairman and Ceo of the New York Stock Exchange, CEO of Aetna insurance, and in his spare time he created and served as the first dean of the Yale School of Management.
So he must know what gutting of the quiet rule is really all about: to revive public confidence in the market, bring in new money, and get stock prices rising again. Unfortunately, it seems far more likely to erode public confidence in the market even further, send more money fleeing, and bring hope and opportunity to a whole new army of smooth-talking CEOs.
* Please send e-mail to: Cbyron@nypost.com |
