FORTUNE
Monday, May 14, 2001
By Peter Elkind
Betrayal on Wall Street
Hear No Risk, See No Risk, Speak No Risk
Diary of a Financial Pornographer
One day in December 1999--near the top of what we now know as the Internet bubble--a couple of East Coast business types with a few hours to kill were cruising Silicon Valley in a chauffeured car. "Yeah, I know 'em all," announced their driver, as they meandered through the streets of Woodside, an exclusive enclave near Palo Alto. Neil Young, for instance--he lives up in the mountains, the driver said. Why, he boasted, his customers even included Mary Meeker. Would they like to see her new California digs?
Within moments the sedan had pulled up to a wooded, four-acre estate, marked with white pillars and protected by a wrought-iron gate. As his wide-eyed passengers watched, the driver stepped out and punched a security code into the keypad. The gate swung open, the driver pulled the car onto the property, and the gleeful pair scampered about the grounds, checking out the backyard pool and peeking into ground-floor windows like teenaged boys granted admission to Britney Spears' bedroom.
It was a sign of those strange times that a Wall Street analyst could excite such fascination. Then again, Morgan Stanley's Mary Meeker was no ordinary analyst. Anointed by Barron's as "Queen of the Net," lovingly profiled by The New Yorker, equated with Alan Greenspan and Warren Buffett as a market mover by the Wall Street Journal, Meeker was the unquestioned diva of the Internet Age. Tech companies begged her to cover them. Morgan Stanley paid her an eye-popping $15 million in 1999. Ordinary investors hounded her for autographs. During the dot-com craze, Mary Meeker was by far the most important voice for the Internet- -and the notion that companies without earnings could transform the world and climb to the moon.
That was then. Today Meeker, 41, has become something else entirely: the single most powerful symbol of how Wall Street can lead investors astray. For the past year, as Internet stocks have crumbled and entire companies have vaporized, Meeker has maintained the same upbeat ratings on her companies that characterized her research reports in the glory days. For instance, of the 15 stocks Meeker currently covers, she has a strong buy or an outperform rating on all but two. Among the stocks she has never downgraded are Priceline, Amazon, Yahoo, and FreeMarkets--all of which have declined between 85% and 97% from their peak. For this she has been duly pummeled in the press, accused of cheerleading for Morgan Stanley's investment banking clients.
But Meeker's refusal to downgrade her stocks is only a small piece of a bigger story. This larger story is about how a smart, hard-working analyst became a big part of the world she covered. Meeker came to see herself not merely as an analyst but as a player--a power broker, a dealmaker, a force to be reckoned with. She was a true Internet insider--and other Internet insiders, most of whom were her friends, shared this exalted view of her. "I don't think of Mary as an analyst," says venture capitalist John Doerr. "I think of her as a service provider for investors, entrepreneurs, and management teams." As a result Meeker did things that utterly compromised her as a stock picker.
In responding now to criticism that she let investors down, Meeker refuses to admit--or even see--how compromised she is. She defends herself in part by saying she feels protective toward the phenomenon she helped launch--and especially toward the dozens of companies she helped Morgan Stanley take public: "There is something compelling about ... playing an important role in something that will never happen again.... I feel a--'stew-ardship' is a strong word--but I feel a keen sense of responsibility." She adds, "If you take a company public and you are really aggressive on the downside, it can be devastating." Of course, if you're not aggressive on the downside, it can be devastating for investors. But that was never a Meeker priority.
Though she was Queen of the Bubble, Meeker hardly reigned alone. The stories that follow explore the many ways investment banks now abuse the trust of their core customers--investors trying to build capital and companies trying to raise it. Betrayal on Wall Street explains how the IPO market became a racket in which banks consistently shortchange the startup clients they're advising in order to create quick profits for institutional traders. In Hear No Risk, See No Risk, Speak No Risk we learn how a chorus of telecom analysts overlooked warning signs at a company called Winstar and kept croaking "buy" right up until this broadband wannabe choked on its own debt. And in his confessional essay Diary of a Financial Pornographer, Nelson Schwartz takes a hit for all of us at fortune and in the media who got caught up in the bubble madness. But first, there's Mary Meeker. |
