Christopher MarkowskiArticle, Wall Street FraudLeave a Comment

There were thousands of e-mails that were integral to helping prove the regulators case. The Wall Street Journal this past month has put together a litany of documents that further prove the malfeasance of the major investment houses. These documents are proof that analysts misled the investing public by basing stock recommendations on the firm’s investment banking goals by artificially inflating stock prices.

Perils of Technology

Mary Meeker, “Queen of the Net” from Morgan Stanley, reflected on the challenges of being a technology-industry analyst in a 2000 self-evaluation, the year when the New Economy imploded. “‘I couldn’t believe how mean people in the firm were to you,'” she quotes one of her colleagues telling her. The 2000 year-end evaluation from Mary Meeker calls competitors Goldman Sachs “kamikaze” and CSFB “junkyard dog.” Also “being a technology analyst is very difficult (it requires broad-based industry/technical knowledge, unusual stamina/flexibility and thick skin, broad perspective and team skills, strong sales skills, and stock picking skills that require a mix of growth, momentum, value, financial and cyclical thinking) it is critical for MSDW to compensate its tech research/IBD team appropriately.” A year earlier, in another self-evaluation, Ms. Meeker says, “Bottom line, my highest and best use is to help MSDW win the best IPO mandates…”

Bitter End

Under a cloud of controversy, Jack Grubman agreed to leave Salomon Smith Barney in August 2002. In his separation agreement, the telecom analyst received a severance payment of $61,538 and a separation payment of $1 million; the firm also forgave $12 million of an outstanding loan to Mr. Grubman and agreed to cover attorneys’ fees related to his employment with Salomon. Read the separation agreement.

Too Loudcloud and Clear

In this June 2000 e-mail from Joe Perella, Morgan Stanley’s head of world-wide investment banking, to Marc Andreessen, potential IPO client Loudcloud, Mr. Perella writes that firm’s successful model “combines the best of technology and telecom research to properly position Loudcloud in the capital markets; specifically, “enthusiastic sponsorship” by two analysts. Morgan Stanley won Loudcloud’s business and received investment-banking fees of about $4.7 million.

Pilgrim’s Shame

In this May 2001 e-mail between research-investment banking liaison members, Joshua Williams writes Michael Blumstein that the firm shouldn’t commit research coverage of Pilgrim’s Pride until they “get the books and at least $3-5 mm in fees, with the money in the bank.” The two were advised that Pilgrim’s Pride was seeking equity research coverage in exchange for a $250 million high-yield offering.

Strong Lies

This Concord/EPS update e-mail in January 2002 says that when Morgan Stanley was not awarded Concord’s 2000 investment-banking business, no coverage was initiated despite the analyst’s initial view that Concord had emerged as a leader in its industry that preliminarily merited a “strong buy.”


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