The Kings of Excess, and Other Standouts
By GRETCHEN MORGENSON
nytimes.com
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HARVEY L. PITT, L. Dennis Kozlowski, Bernard J. Ebbers, Jack B. Grubman. Their crashing falls from grace helped make 2002 a year for business scandals that may never be topped. In fact, had a novelist like Anthony Trollope, the 19th-century chronicler of English society at its best and worst, invented these characters, his readers would have rejected them as caricatures. Too improbable. Too grasping. Too contemptible.
But genuine they were, as investors found out to their dismay this year. Although their struts across the stage were spectacles, they were not alone as standouts. Others earned a part in this year's unforgettable bear market pageant.
In honor of their performances, it is again time to hand out the Augustus Melmotte Memorial Prizes, named for the swindler and schemer central to Mr. Trollope's novel "The Way We Live Now." Mr. Melmotte rose to the heights of London society on wealth he had raised ostensibly to build a railroad in North America but which instead went into his own pockets. He was found out, of course. But by that time, much of the money was gone.
Investors can be forgiven for feeling that much of their money has vanished in this, the third year of free-falling stock prices.
Following are the prizes and the winners.
THE SOMEBODY ELSE'S FAULT AWARD To Alan Greenspan, the chairman of the Federal Reserve Board, who is busily ducking any blame for failing to prevent the stock market bubble and its awful aftermath. His latest attempt came this month during a speech at the Economic Club of New York. In his inimitable prose, Mr. Greenspan said: "Whether incipient bubbles can be detected in real time and whether, once detected, they can be defused without inadvertently precipitating still greater adverse consequences for the economy remain in doubt."
Translation: Don't blame me for watching blithely as the bubble grew and grew. It was so very pretty, and how was I to know it would blow investors away when it popped?
Clearly, Mr. Greenspan is worried about his legacy and how history will view his inaction in the face of an obvious stock market mania. But he seems to have forgotten that when he points his finger elsewhere in blame, three fingers remain pointed at himself.
THE THREE IS A CHARM AWARD To Irwin L. Jacobs, the Minneapolis financier, who came to the plate with a swagger in 2001 to bat against the short-sellers who had placed negatives bets on three stocks he owned. In newspaper advertisements and on his own Web site, Mr. Jacobs cheered on the shares of AremisSoft, a software company; Clarent, a telecommunications concern; and Conseco, the financial services giant. When Gary C. Wendt arrived to rescue Conseco, for example, Mr. Jacobs exulted: "We know God can't come down here and do this. But the next best thing to God is Gary Wendt."
Not quite. Unlike Conseco, heaven has yet to file for Chapter 11 protection.
Alas for Mr. Jacobs, in 2002, his trio tripped up. AremisSoft filed a Chapter 11 petition in March, and during one week in December, Conseco and Clarent both announced bankruptcy filings. Hockey fans would call that a hat trick for Mr. Jacobs; racing fans, a trifecta. In any case, going three for three is hard to do.
THE TIMING IS EVERYTHING AWARD To Jack Welch and Lou Gerstner, who left their chief-executive posts just before the bottom fell out of their companies' stocks. When Mr. Welch retired from General Electric in early September 2001, its shares traded at $39.66; on Friday, they closed at $24.75. Mr. Gerstner stepped down as chief of I.B.M. on March 1. Since then, its stock has lost 25 percent.
To quote Shakespeare, "Exit, pursued by a bear." ("The Winter's Tale, Act III, Scene 3, stage direction to Antigonus.)
THE DID I REALLY SAY THAT? AWARD To Jeffrey R. Immelt, the chief executive of G.E., who in an interview last Jan. 15, was asked which chief executives he admired. No. 2 in his pantheon, after Steven A. Ballmer of Microsoft, was Jean-Marie Messier, the disgraced and lately dismissed Vivendi Universal chief. Since then, Vivendi's stock has dropped 68 percent. Let's hope Mr. Immelt's favorites inside G.E. fare better.
THE THAT'S MORE LIKE IT AWARD To Mr. Messier, who ran off to start a hedge fund in October after wreaking havoc on shareholders of Vivendi Universal. Come to think of it, this is actually Mr. Messier's second attempt at a hedge fund, because wasn't that what Vivendi turned out to be, under his direction?
THE EXPANDING LANGUAGE AWARD To Gary Winnick, whose actions as top executive of Global Crossing leave him in danger of earning the title looter in chief, and have given a new word to the lexicon. Recalling that he sold stock worth $734 million in the telecommunications concern before it filed for bankruptcy, investors who think they've been cheated now say they've been "winnicked." The new word has also been heard on golf courses, especially in the Los Angeles area, where Mr. Winnick lives. Golfers caught cheating on their score cards are told by their partners: "Don't you winnick me."
THE TRUTH IN ADVERTISING AWARD To the Charles Schwab Corporation, for showing investors how stocks are really sold in the famous cinéma vérité television commercial entitled "Pep Talk." Talking up a stock to a roomful of brokers, a Wall Street executive says, "Don't mention the fundamentals; they stink." After promising courtside playoff tickets for the broker who sells the most stock, the executive says, "Now let's put some lipstick on this pig."
Bull's-eye.
THE DENIAL IS POTENT AWARD Bernard J. Ebbers, founder and former chief executive of WorldCom, whose creation crashed to earth in the nation's largest bankruptcy filing last July. Although his shareholders lost everything and thousands of his workers lost their jobs, Mr. Ebbers told Congress last summer that he was proud of his work at WorldCom.
Mr. Ebbers still owes WorldCom $408 million, which he borrowed to meet margin calls at his brokerage firm when WorldCom shares started their slide. For those WorldCom creditors worried that Mr. Ebbers will never be able to repay his loan, look on the bright side. The man has all kinds of experience in other industries. After all, before he built WorldCom he had been a milkman, a bouncer and a car salesman. But it might take a while to get the money back.
THE WHAT SCANDALS? AWARD To Hardwick Simmons, the chief executive of the Nasdaq stock market, which has lost 31 percent of its value this year, kept asking throughout 2002 what all the scandal talk was about. Mr. Simmons, who is against accounting for stock options as an employee cost, told a reporter at The Globe and Mail of Toronto that chief executives had recently grown too preoccupied with director independence. "All the academic literature I've ever seen — and I mean there is none on the other side — shows there is absolutely no correlation between the independence of one's board and the performance of one's company," he was quoted as saying. "In fact it works exactly the opposite."
And finally, a tip of the hat this year to Colin Devine, the Salomon Smith Barney analyst who warned investors away from Conseco stock in January 1999 and took a lot of heat from the company for it. His focus on the company's numbers kept Mr. Devine from buying into the company's spin. Even as investors cheered the arrival of Mr. Wendt — a savior to some — Mr. Devine kept his feet on the ground, proving that top-flight, skeptical analysis can indeed come out of a big Wall Street firm. |
