If you had an account at one of Wall Street’s 10 largest securities firms, chances are your brokerage sold you out.
After the $1.4 billion settlement brokerages reached with regulators last week, it’s clear these firms funneled customers into money-losing stocks to land lucrative investment banking deals.
They took your life savings, gave it to overpaid executives to squander on half-baked ideas, collected a fat commission for the service and then headed for the beach.
Here’s just one example, according to regulators:
On Jan. 25, 2001, a Bear Stearns analyst was on a conference call with SonicWall Inc., a foundering Internet security products firm.
Bear Stearns managed SonicWall’s stock offerings in 1999 and 2000, and it maintained a “buy” rating on the stock until April 2002, even as it plunged from nearly $66 to $3.75 per share.
“I am trying to make them look good,” the analyst said in an e-mail to one of his colleagues during the conference call. “We got paid for this and I am going to Cancun tomorrow b/c of them!”
Also consider this e-mail from a junior Merrill Lynch analyst to the firm’s Internet stock guru, Henry Blodget. The missive regarded the merits of rating GoTo.com a “buy” in exchange for potential investment banking business.
“I don’t want to be a whore for (expletive) mgmnt. We are losing people money and I don’t like it. John and Mary Smith are losing their retirement because we don’t want (GoTo’s CFO) to be mad at us.”
In unveiling the settlement, regulators released scores of examples of exactly this sort of banter. Ironically, the very technology that led to all this hype also exposed it. The cases against securities firms rest largely upon internal e-mails showing that as analysts rated stocks “buy,” they privately called them “pigs,” “dogs,” and “pieces of.”
Go to www.sec.gov/litigation/ litreleases.shtml, read press releases dated April 28 and click on links to the full complaints. If you’ve lost money at one of these firms, it doesn’t take long to bring your blood to a boil – particularly when you consider that settlements came without admitting nor denying guilt, as is standard practice in civil securities matters.
The $1.4 billion in fines are billed as the largest in history, but they amount to only 7 percent of these firms’ earnings in 2002, which was their worst year since 1995. The fines are microscopic when you consider that investor losses tally roughly $7 trillion since the broad stock market averages peaked in March 2000.
I hear people wonder whether American investors could be duped again considering all the corporate scandals that have come to light. Some argue that we are smarter now. But I’m not so sure.
The fact is, even after this frightful chapter in Wall Street’s history, millions of Americans still have money at Salomon Smith Barney, Credit Suisse First Boston, Merrill Lynch, Morgan Stanley, Goldman Sachs, J.P. Morgan Chase, Lehman Brothers, Bear Stearns, USB Paine Webber and U.S. Bancorp Piper Jaffray.
Clearly, we can’t blame everything on these firms. And anyone who made an investing decision based on a single broker recommendation or analyst report should have done more homework. But it’s also obvious that these firms violated the trust that hapless investors placed in them.
With the settlement behind them, our Wall Street wonders will speak of moving forward in a new era of reform. But what’s to reform when trust is gone?
Our big-name brokerages behaved like rigged casinos. We paid them to manage our investments and they dealt from stacked decks. Sure, some of us chose to gamble with our nest eggs. But only a chump would keep playing with these dealers running the tables.