One of the “white shoe “ brokerage firms that has managed to keep itself out of the spotlight and above the fray over the past few years is Morgan Stanley. The Markowski Monthly has been the only publication that has chronicled the devious works of this storied institution. We highlighted in both the May 1999 and June 2000 editions some of the tactics that Morgan Stanley and their top technology analyst Mary Meeker were involved in. Morgan Stanley was one of the most prolific investment banks during the go-go 90’s, handling the second most IPO’s in 1999-2000. Now more information is being made public backing up our suspicions of stock manipulation, laddering and malfeasance in their mutual funds.
Laddering is when a brokerage firm solicits aftermarket orders while selling the IPO. Brokers would ask customers how much they would be willing to pay in the “aftermarket.” This tactic is used by boiler room operations to manipulate penny stocks as well. Brokers demanded two to three additional shares for every IPO share a customer purchased. In doing this, it creates an amazing order imbalance that drives shares up to ridiculous levels. However, if you were an insider or a big fish client of the firm you were not instructed to buy “aftermarket,” you were selling your position to the suckerfish.
The results speak for themselves…
Several investors have stood witness in a current SEC investigation into Morgan Stanley and have testified that the firm pressured them to raise the price level of their “aftermarket” orders in conjunction with lifting IPO price ranges. Investors also stated that undue pressure was applied to them when told that the level of other customers orders were higher than theirs. They were threatened that their IPO allocation would be reduced or eliminated unless they invested more.
In order to help facilitate the scam you needed a voice to lend credibility to your baseless projections. For Morgan Stanley that voice was Mary Meeker. This highly paid captain of the Morgan Stanley cheerleading squad was a regular on CNBC and written about in ridiculous tech magazines like Red Herring and Fast Company. CNBC and other outrageous investment forums anointed Mary Meeker, like Jack Grubman and Henry Blodget as prophets. Mary had the power, had the magic touch to move markets. However, investors learned the hard way that this emperor too, had no clothes. Her predictions and ratings were nothing more than baseless drivel. If you were a disciple of Mary Meeker and invested with her, your portfolio is down more than 95%. Mary Meeker was a $20 million dollar salesman. Her uncanny ability to lose investors money but make her firm a bundle was priceless.
This past month Christopher Byron of The New York Post reported that Morgan Stanley was being dishonest when it came to disclosing a major loss in a mutual fund. Morgan Stanley reported that they had to report $15 million in an investment in the hedge fund Lancer Partners. A letter to the shareholders of the Lancer Fund obtained by The New York Post asserts that Morgan Stanley’s investment exceeds $50 million. Hedge fund investments are sketchy at best and are very difficult to place a value on. More and more hedge funds have been going out of business every day losing investors billions. The million-dollar question is why would a mutual fund invest in these types of vehicles? If you guessed “money” you were right on. Hedge funds make a tremendous amount of trades on a daily basis creating huge commissions for the firms that clear their trades. Morgan Stanley of course wants that revenue. What better way to get it than by striking a little quid pro quo?