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Non-Tech : The ENRON Scandal -- Ignore unavailable to you. Want to Upgrade?

To: Baldur Fjvlnisson who wrote (3872)	4/16/2002 12:50:44 PM
From: Mephisto	Read Replies (1) \| Respond to of 5185

" Is anyone really in charge of this whole mess?" Sure! The brokerage firms that sell the stocks to you, and the over-paid CEO's who make a fortune even if their company loses money!

To: Baldur Fjvlnisson who wrote (3872)	4/16/2002 1:22:29 PM
From: Mephisto	Respond to of 5185

The Executive Pay Scam Editorial The New York Times April 14, 2002 You win, I win. You lose, I lose." That was the seemingly unassailable deal corporate chieftains struck with their shareholders at the outset of the bull market in the early 1980's, when they aggressively linked their compensation to their companies' stock prices. The arrangement allowed chief executives like Roberto Goizueta, Michael Eisner and Jack Welch to amass fortunes that would once have been unthinkable for mere hired hands. Their pay, we were constantly reminded lest we should become resentful, reflected their performance. What could be more fair, more in keeping with the American spirit of meritocracy? The deal looks like a sham now that the roaring bull market has run its course. "You lose, I still win" is the new message shareholders have been hearing from companies' top managers. In a down market, most chief executives should have suffered under the model that was applied on the way up. At some companies that has happened, but at others management rewrote the rules. While base pay did decline in 2001, some companies made up the difference in performance pay, where the real money is to be had. Take Cisco Systems, one of the highfliers of the Nasdaq run-up that has fallen on hard times recently. The company lost $1 billion in its last fiscal year, and its stock price took a nose dive, so it should come as no surprise that John Chambers, its chief executive, saw his base salary fall to $268,000 from $1.3 million the year earlier. But with the six million stock options he got, it is estimated that his pay might be a third higher. At Coke, the board reset the performance targets the chief executive, Douglas Daft, needs to meet to earn a million shares. If only shareholders could reset the clock like that. The pay-for-performance model is blessed by tax laws that prevent companies from deducting as an expense any portion of an executive salary in excess of $1 million but place no limit on the deductibility of so-called performance-based pay. Yet even before it came to be egregiously violated, the policy was flawed. Too many mediocre corporate leaders made their fortunes merely by riding the bull market. Stock option packages became so outlandish that they began to undermine the principle they were meant to serve. A number of chief executives are now motivated to prop up the stock price at any cost until they can cash in their options. The common thread running through these excesses is the acquiescence of boards of directors. Instead of overseeing management on behalf of shareholders, boards have acted as servants of management. Among the supposedly independent directors at Enron were individuals who received consulting deals from the company and one whose medical center got Enron donations. The New York Stock Exchange is considering a requirement that directors on audit and compensation committees be independent. The definition of an independent director also needs tightening to exclude not only past and present employees, but also anyone else beholden to the company through financial dealings. A more rigorous rule under consideration would preclude the same person from serving as board chairman and chief executive. Congress ought to consider ways to hold corporate executives more accountable. Instead, the House last week passed a so-called pension reform bill that might actually encourage companies to drop lower-paid employees from pension plans to direct even more resources to top executives. Employees lose, the chief executive wins. nytimes.com

To: Baldur Fjvlnisson who wrote (3872)	4/26/2002 4:29:02 PM
From: Mephisto	Respond to of 5185

Looks like you could be right: They're all in bed together. The news last night said there is a huge investigation into brokerage firms, analysts and even the NY stock exchange and the NASD.

To: Baldur Fjvlnisson who wrote (3872)	4/26/2002 4:29:30 PM
From: Mephisto	Read Replies (1) \| Respond to of 5185

S.E.C. Begins Investigation Into Analysts April 26, 2002 By PATRICK McGEEHAN T he Securities and Exchange Commission, the chief regulator of financial markets, announced yesterday that it had begun a formal investigation into Wall Street stock analysts and their potential conflicts of interest. One day after meeting with Eliot L. Spitzer, the New York attorney general, Harvey L. Pitt, the S.E.C. chairman, said the commission would join forces with Mr. Spitzer and other state and federal securities regulators in a "formal inquiry." The commission does not usually announce its investigations but Mr. Spitzer has received a lot of attention in the last three weeks for his investigation of whether analysts at Merrill Lynch and Citigroup recommended stocks to help their employers' obtain or keep investment banking business. Mr. Pitt's announcement signals that other firms on Wall Street will not be left out and that the regulators will seek to propose solutions that will affect all securities firms. Shares of several major securities firms dropped sharply after the announcement. "This is a significant step," said Lewis D. Lowenfels, an authority on securities law at Tolins & Lowenfels in New York. "A federal agency is exercising its jurisdiction to take control of an investigation that has national implications from a policy standpoint." Since last year, regulators at the commission and the National Association of Securities Dealers have been looking into analysts' practices. But turning the effort into a formal investigation gives the commission the power to compel testimony and to issue subpoenas to investment banks for any relevant documents. Mr. Spitzer's investigation, begun last summer, took on a new life after his office gathered e-mail messages written by Merrill analysts that appeared to show that their private opinions of some stocks differed markedly from their public statements. In those messages analysts, including Henry Blodget, a former star analyst at Merrill, called companies they were recommending junk and worse. Talking to reporters after giving a speech in New York yesterday, Mr. Pitt said that it would be irresponsible of the commission to ignore the issues that had been raised in the investigations by Mr. Spitzer and others. He also indicated that the commission wanted to take control of the policing of an issue that many on Wall Street think should be left to federal regulators, not sorted out state by state. In a statement, Mr. Pitt said, "We will give investors confidence that the same securities rules and protections apply no matter where they live or do business." Mr. Pitt said the S.E.C. would coordinate its inquiry with state securities regulators, the New York Stock Exchange and the N.A.S.D. On Wednesday, the North American Securities Administrators Association said that it had formed a multistate panel to study analysts' practices. Mr. Spitzer said in an interview yesterday that he welcomed the involvement of the federal regulators but that he would proceed with his investigation. "I have always believed that the best way to resolve this was to have the regulatory agencies working together," Mr. Spitzer said. "We framed the issue. Now, we need to solve it." He declined to discuss what he and Mr. Pitt talked about when they met in Washington on Wednesday. But he said he intended to continue trying to reach a settlement with Merrill Lynch. Mr. Spitzer has been demanding that Merrill Lynch pay a large fine and create a restitution fund for investors who bought stocks on the recommendations of the firm's analysts. He has asked the firm for $100 million or more, according to people close to the negotiations. Merrill has balked at paying that much and, especially, at admitting any wrongdoing, which could weaken the firm's defenses against lawsuits by investors, these people said. Last fall, Merrill agreed to pay $400,000 to settle a complaint a customer brought against the firm and Mr. Blodget. Mr. Spitzer has also asked Merrill to make structural changes to increase the insulation of its analysts from the firm's investment bankers and their corporate relationships. Merrill officials proposed setting up a board for its research department, with the majority of them coming from outside the firm and reporting directly to the firm's senior executives. But Merrill is reluctant to agree to significant changes that might handicap it in competing with other firms that have not made such changes, people close to the firm said. Even Mr. Spitzer has acknowledged that Merrill has done more to insulate analysts from bankers than some of its major competitors. "It may be that what we want Merrill to do is more substantial than what others are thinking of," Mr. Spitzer said. Merrill's stock fell another 4.8 percent yesterday, to $42.50, and is now down 21 percent since Mr. Spitzer released the e-mail messages on April 8. nytimes.com