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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: chaz who wrote (51919)	7/8/2002 4:37:59 PM
From: Mike Buckley	Read Replies (2) \| Respond to of 54805

Chaz, Yes, I watched the live portion of the hearings that CNN covered. I understand your frustration. However, ... Andersen's (paid $4.5million annually) autitor signs off on the audit, but can't say how the $3.6, (or .7, or .8, or .1 depending on who you listen to) was moved because the information hasn't been provided to him, and he's not sure if the information is a public record yet. That seemed reasonable to me. He explained that he left Andersen about a month before WorldCom's internal audit discovered the problem. It's not possible nor is it a responsibility for an audit team to catch every commission of fraud for the same reason that it's not reasonable to expect that a police department should prevent or solve every crime. Regarding the analyst: And the information gained in the meetings? No, it may not have been public, and it may or may not have affected his view of the company. To clarify that, he testified that he and his staff were exposed to information discussed in the board meeting that was not publicly available at the time of the meeting. He also noted that it was made public within one or two days of the meeting. When you note the timing of the "buy" recommendations and the timing of attendance at the board meetings, I think the larger issue to be exposed is that WorldCom's management clearly solicited and heeded advice by sell-side analysts. Most of us who follow this thread appreciate the reasons individual investors should not pay attention to the recommendations of sell-side analysts. For the same reason, we should be very skeptical of investing in companies whose management teams pay attention to sell-side analysts. However, virtually every time one of our companies floats a public or private debt or equity offering, it's doing so at the recommendations of sell-side analysts. That's pretty scary in my mind, more so than the sell-side analysts' recommendations to retail investors. The members on the House Committee may be asking useful questions, but they never seem to get useful answers. For the most part, they aren't looking to ask useful questions or get useful answers. Instead, they're usually using the platform as a bully pulpit to show their constituents how outraged they are. Too often, being outraged is sufficient and it stops there. However, when the committee gets confirmation from an analyst that he is paid $20 million a year, that's very useful information for anyone who really wants to see answers clearly. No one could possibly justify paying $20 million to one person purely for his/her analysis. Clearly, there are other issues at stake such as the investment banking business even if there is no way to clearly establish a direct connection between that business and the analyst's compensation. witnesses will not go to jail, be fined, lose their houses, or be forced to make restitution, or be fired by their auditor I don't think this is over. I'll be surprised if New York doesn't criminally prosecute at least a few of the big-name analysts. I'd be very surprised if Beeker's and Blodget's legal fees haven't risen dramatically recently. By the way, if analysts do go to jail, I believe a response in the analyst community will be to make quite a few more "sell" recommendations beyond the 1% that are currently made. If that happens, it will cause discomfort that might be sufficient to tank all stocks in the spirit of throwing the baby out with the bath water. Will the retail investing community be praising the analysts for the integrity of their "sell" recommendations if that happens? Probably not. The most surprising issue for me was to learn of a law suit against WorldCom that was dismissed, not because there was no wrong doing but because the complaint didn't measure up to the requirement of the law. If the congressman who brought it up is to be believed, apparently the court ruled that indeed there was wrong doing. In response to that ruling, the auditor interviewed WorldCom's internal and external lawyers involved in the case but didn't take the time to interview the investors' legal team that brought the suit. Worse yet, he testified that he doesn't know if he should have done so. --Mike Buckley