Congressional Enron Hearings Begin on Jan. 24.
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A Roster of Awards Better Off Unawarded
The New York Times
December 30, 2001
MARKET WATCH
By GRETCHEN MORGENSON
Measured by its stock market action alone, 2001
was clearly a disappointment. But judge the
year instead by the audacity of its corporate
schemers, Washington scalawags and Wall Street
rogues, and 2001 becomes tough to top.
Although most investors probably prefer to look
forward and not back, the end of the year is always a
splendid time to review with fondness the players and
the moves that dominated the business stage. So it is
time again to announce the Augustus Melmotte
Memorial Prizes, named for the stock manipulator
and arriviste at the heart of "The Way We Live Now"
by Anthony Trollope. Mr. Melmotte, a man of
uncertain fortune and lineage who nevertheless rose
to the top of London society in the late 1880's, met his
downfall when he was caught selling shares to
investors in a railroad company that existed only in
his imagination.
Come to think of it, didn't Enron , the year's grandest corporate disgrace,
ultimately exist more in the imagination of investors than in reality? Yes, but even Mr.
Trollope, a master of the fictional fantastic, could not have dreamed up the Enron
story.
Although the wealth-wrecking crew at Enron could walk away with every one of the
Melmotte prizes this year, there were others whose actions should be noted and
appreciated.
Here are the prizes and their winners.
THE WHAT I DON'T KNOW CAN HURT YOU AWARD
To Kenneth L. Lay, the chairman of Enron, who presided
over the loss of $61 billion in investor wealth in 2001 and one of
the quickest corporate collapses ever. Claiming to be a
somewhat bewildered bystander, Mr. Lay told a reporter,
"You're getting way over my head," when asked about
transactions Enron made with mysterious partnerships set
up by company insiders. Mr. Lay seemed happy to let his
underlings act without interference, a management style
that hereafter may be known as Laysez-faire.
THE I ALSO HAVE A BRIDGE TO SELL YOU AWARD
To Jeffrey K. Skilling, the architect of Enron's rise to stock
market stardom but a man who takes no responsibility for its
spectacular fall. Mr. Skilling, Enron's chief executive for a six-month
period that ended in August, has said he knew nothing about the off-
balance-sheet partnerships set up by Andrew S. Fastow, Enron's
chief financial officer, which benefited Mr. Fastow but
helped bring down the company. Mr. Skilling said he left his Enron
post for personalreasons he declined to specify. Mr. Lay was more forthcoming; he said the reasons
were "things with fairly short time fuses on them." Hmm.
THE HEADS I WIN, TAILS YOU LOSE AWARD
To Andrew S. Fastow, the former chief financial officer at Enron, who pocketed more
than $30 million from the behind-the- scenes partnerships he set up as vehicles for
the company's trading businesses. While the partnerships enriched Mr. Fastow, they
made paupers of Enron shareholders, who were ultimately on the hook for some of the
partnerships' obligations.
A TURN AROUND IS MORE THAN TALK AWARD
To Gary C. Wendt, who since arriving at Conseco as chief executive 18
months ago has told investors repeatedly that the company's revival is just around the
corner. Most of his forecasts, made in folksy memoranda in which he attacked
company doubters, have not transpired. Shares of Conseco, which rose 17 percent
when he was hired to save the company, have lost almost 70 percent of their value this
year.
THE ONLY THE LITTLE PEOPLE PAY TAXES AWARD
To Republican lawmakers who actually voted to repeal a tax intended to ensure that
wealthy corporations pay something in income tax. Never mind that - thanks to the
tax treatment on stock options - some of the nation's largest and richest companies
paid little or no taxes in recent years. Icing on this particular cake was billions of
dollars in rebates to companies like I.B.M. and General Electric.
Thankfully, this dumb idea died, a victim of partisan bickering.
THE OFTEN WRONG BUT NEVER IN DOUBT AWARD
To Ron Barone, the research analyst at UBS Warburg who covered Enron, or perhaps
more accurately, who through it all was one of Enron's loudest apologists. On Aug. 17,
after analysts met with Mr. Lay, the Enron chief, Mr. Barone told Bloomberg News:
"Ken met with us to reassure us that there is nothing wrong with the company. There
is no other shoe to fall and no charges to be taken." Less than three months later, one
of the biggest shoes in corporate history descended when Enron announced that it
would restate earnings for the previous four years, eliminating $600 million. A believer
until the bitter end, Mr. Barone waited until Nov. 28, when Enron's shares had more
value as wallpaper than as stock, to replace his "strong buy" label on the stock with a
"hold."
THE IT WAS FUN WHILE IT LASTED AWARD
To Henry Blodget, who will abandon his post as chief Internet analyst at Merrill Lynch
tomorrow, after all but 2 of the 18 stocks he followed collapsed in a heap.
A certifiable bull-market genius, Mr. Blodget learned how unfun bear markets can be
- and that worshipful investors who hang on an analyst's every word are far preferable
to the tediously litigious sort who sued him and Merrill in July.
THE BALANCE SHEET DOES MATTER AWARD
To Jack Grubman, the telecommunications analyst at Salomon Smith Barney who has
lost investors so much money that he could give new meaning to the term "Neutron
Jack." His breathless buoyancy on the sector drove investors into dicey telecom stocks.
Now that many of his former darlings have dropped dead, victims of too much debt that
his firm helped to pile on, he has taken a new approach. He now has a "neutral" rating
on 16 of the 26 stocks he follows. But those who followed his advice are probably
anything but neutral on him.
THE SELLER BEWARE AWARD
To Henry Silverman, the chairman of Cendant , who finds his company
once again pained by an accounting mess of someone else's creation. This time, the
accounting irregularities showed up at Homestore.com, a real estate Internet site
whose largest shareholder is Cendant and on whose board a Cendant representative
serves. The affiliation began last February, when Cendant sold its Internet subsidiary,
Move.com, to Homestore, producing a $525 million gain. Now, Homestore shares have
stopped trading until the depth of the accounting faux pas is known. Of course, the
impact of Homestore's woes on Cendant will be nothing like the nightmare that grew
out of the company's purchase of CUC International in 1997. That deal resulted in the
restatement of three years of earnings by Cendant - which had to deduct a total of
$640 million that prosecutors said was created out of thin air at CUC.
THE STYLE IS NICE BUT SUBSTANCE RULES AWARD
To Carleton S. Fiorina, the chief executive of Hewlett-Packard , who can
spin with the best, but whose delivery of the goods, a k a earnings, has been lacking.
Even though she's one of the best C.E.O. cheerleaders out there, if she fails to
complete her planned merger with Compaq Computer (news/quote), she may go to the showers a loser.
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