Infectious Greed (77 page)

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Authors: Frank Partnoy

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85
Michael G. Wagner, “Citron Called An ‘Abject Failure' in Probation Plea,”
Los Angeles Times,
November 28, 1995, p. A3.
86
Jack Leonard, “Raabe Case Tossed Out,”
Los Angeles Times,
July 7, 2001, Part 2, p. 1.
87
Jack Leonard, Jean O. Pasco, and Monte Morin, “Orange County Retrial Rejected,”
Los Angeles Times,
July 14, 2001, Part 2, p. 6.
88
Matt Rees and Anthony Effinger, “ABN Amro Case Brings Derivatives Nightmare to Life,”
Bloomberg News,
November 16, 1993.
89
Michael D. Greenbaum, “Duking It Out,”
Forbes,
October 10, 1994, p. 21.
90
Procter & Gamble v. Bankers Trust,
925 F. Supp. 1270, 1277 (S.D. Ohio 1996).
91
In re County of Orange,
U.S. District Court, Central District of California, District Court Case No. SACV 96-0765-GLT, March 18, 1997.
92
In re County of Orange,
U.S. Bankruptcy Court, Central District of California, Case No. SA 94-22272 JR;
County of Orange v. Student Loan Marketing Association,
Complaint, pp. 11-14.
93
Regulation S-K, Item 508(e).
94
NASD Rule of Fair Practice 44(c)(2)(B).
95
NASD Rule of Fair Practice 44(c)(2)(C).
96
Central Bank of Denver v. First Interstate Bank of Denver,
511 U.S. 164 (1994).
97
“Remarks by Arthur Levitt,” 22nd Annual Securities Regulation Institute, January 25, 1995, p. 1.
98
“Remarks by Arthur Levitt,” p. 1.
99
“The Return of von Clausewitz, A Survey of Management,”
The Economist,
March 9, 2002, p. 18.
100
Jill Andresky Fraser, “How GE's Tough Love Saved Kidder,”
Institutional Investor,
April 1994, p. 35.
101
Michael Carroll and Ida Picker, “GE Draws a Line in the Sand at Kidder,”
Institutional Investor,
July 1994, p. 13.
102
Fraser, p. 35.
103
Michael Siconolfi, “Jettisoned: With Scandal Report Due Today, Kidder Ousts Another Official,”
Wall Street Journal,
August 4, 1994, p. A1.
104
Fraser, “How GE's Tough Love Saved Kidder,” p. 35.
105
William M. Carley, Michael Siconolfi, and Amal Kumar Naj, “Major Challenge: How Will Welch Deal with Kidder Scandal? Problems Keep Coming,”
Wall Street Journal,
May 3, 1994, p. A1.
106
Carley, Siconolfi, and Naj, p. A1.
107
Carley, Siconolfi, and Naj, p. A1.
108
Siconolfi, p. A1.
109
Siconolfi, p. A1.
110
Gary G. Lynch, “Report of Inquiry into False Trading Profits at Kidder, Peabody & Co. Incorporated,” August 4, 1994, p. 28.
111
Lynch, p. 31.
112
In the Matter of Orlando Joseph Jett,
Administrative Proceeding File No. 3-8919, July 21, 1998, p. 3.
113
Fred Vogelstein, “Smoke and Mirrors on Wall St.; Bond Trader Allegedly Learned to Fool System,”
Newsday,
May 3, 1994, p. A41.
114
In the Matter of Orlando Joseph Jett,
p. 16.
115
Carol J. Loomis, “Behind the Bombshells at GE and Procter & Gamble,”
Fortune,
May 16, 1994, p 14. This estimate excluded certain accounting adjustments.
116
Carley, Siconolfi, and Naj, p. A1.
117
Carley, Siconolfi, and Naj, p. A1.
118
Michael Siconolfi, “Cerullo Leaves Kidder with Healthy Severance,”
Wall Street Journal,
July 25, 1994, p. C1.
119
Gary Weiss, “The Flimsy Case against Joseph Jett,”
BusinessWeek,
July 1, 1996, p. 90.
120
“Ex-Kidder Workers Get Severance Pay—With a Catch—They Must Agree to Be Silent on Tenure at Company,”
Bloomberg News,
January 13, 1995, p. 1.
121
Weiss, p. 90.
122
“Disgraced Trader Vows to Return,”
Daily Telegraph,
July 6, 1996, p. 1.
123
Jerry W. Markham, “Guarding the Kraal—On the Trail of the Rogue Trader,”
Journal of Corporation Law,
Fall 1995, pp. 144-145.
124
John Gapper, “Banks Warned on Linking Bonuses to Profit,”
Financial Times,
July 27, 1994.
125
“Explaining It to the Board,”
Derivatives Strategy,
April 4, 1994, p. 3.
126
Terence P. Pare, “Learning to Live with Derivatives,”
Fortune,
July 25, 1994, p. 106.
127
Hal Lux, “Levitt's Last Testimony,”
Institutional Investor,
January 2001, p. 74.
128
Lux, “Levitt's Last Testimony,” p. 74.
129
Ford S. Worthy, “What We Learned from the '87 Crash,”
Fortune,
October 5, 1992, p. 98.
Chapter 7: Messages Received
1
“Fallen Idols,”
The Economist,
May 4, 2002, p. 11.
2
Andrei Shleifer,
Inefficient Markets: An Introduction to Behavioral Finance
(Oxford University Press 2000).
3
In the Matter of Cendant Corporation,
Securities Exchange Act of 1934 Release No. 42933, June 14, 2000, p. 7.
4
In the Matter of Cendant Corporation,
p. 15, note 10.
5
Susan Jackson, “Point, Click—and Spend,”
BusinessWeek,
September 15, 1997, p. 74.
6
Mary J. Cronin, “Business Secrets of the Billion-Dollar Website,”
Fortune,
February 2, 1998, p. 142.
7
“Cendant Announces Public Offering of $1 Billion of FELINE PRIDES,”
Business Wire,
February 12, 1998.
8
In the Matter of Cendant Corporation,
p. 10.
9
In the Matter of Cendant Corporation,
p. 13.
10
Tom Lowry, “Just Going about His Business,”
BusinessWeek,
February 28, 2000, p. 138.
11
Amy Barrett, “Who's to Blame,”
BusinessWeek,
August 17, 1998, p. 70.
12
Cendant Corp. v. Forbes,
99 Civ. 4869 (S.D.N.Y. 1999).
13
David E. Rovella, “SEC ‘Goes Criminal' on Fraud,”
National Law Journal,
May 7, 2001, p. A1.
14
Rovella, p. A1.
15
Subrata N. Chakravarty, “Dean Buntrock's Green Machine,”
Forbes,
August 2, 1993, p. 96.
16
Chakravarty, p. 96.
17
Ralph Blumenthal, “Waste Hauler's Business Acts Faulted,”
New York Times,
March 24, 1983, p. B12.
18
Chakravarty, p. 96.
19
Gene G. Marcial, “Big Names at Boca Resorts,”
BusinessWeek
, July 2, 2001, p. 110.
20
David Young, “Waste Firm Still Hauling Image Woes,”
Chicago Tribune,
October 6, 1991, p. C3.
21
Young, p. C3.
22
In the Matter of Arthur Andersen LLP,
Exchange Act Release No. 44444, Administrative Proceeding File No. 10513, June 19, 2001, p. 5.
23
Michael Schroeder, “Suit Says Policing Audits Is Conflict for SEC,”
Wall Street Journal,
February 22, 2002, p. C1.
24
In the Matter of Arthur Andersen LLP.
25
Kristina Torres, “Generosity Can Come with Strings Attached,”
Saint Paul Pioneer Press,
April 6, 2002.
26
In the Matter of Waste Management, Inc.,
SEC Administrative Proceeding File No. 3-10238, June 21, 2000.
27
David Grainger, “You Just Hired Him; Should You Have Known Better?”
Fortune,
October 29, 2001, p. 205.
28
“Al Dunlap's Disgrace,”
Australian Financial Review,
July 21, 2001, p. 21.
29
“Al Dunlap's Disgrace,” p. 21.
30
In the Matter of Sunbeam Corporation,
Administrative Proceeding File No. 3-10481, Release No. 33-7976, 34-44305, May 15, 2001.
31
Patricia Sellers, “Exit for Chainsaw? Sunbeam's Investors Draw Their Knives,”
Fortune,
June 8, 1998, p. 30.
32
Sellers, p. 30.
33
Jenny Andersen, “Al Gets the Chainsaw,”
Institutional Investor,
October 1999, p. 224.
34
Barbara Demick and Daniel R. Biddle, “To Some, Rite Aid a Hard Pill to Swallow,”
Chicago Tribune,
May 15, 1989, p. C3.
35
Rich Exner, “Bribery Charges Dismissed Against Rite Aid,”
United Press International,
July 16, 1990.
36
“Rite Aid Vindicated, Returns to Business,”
Chain Drug Review,
April 22, 1991, p. 47.
37
Vindu P. Goel, “Prescription for Growth,”
Plain Dealer,
December 17, 1995, p. 1J.
38
In the Matter of Rite Aid Corporation,
Administrative Proceeding File No. 3-10808, Exchange Act Release No. 46009, June 21, 2002, p. 8.
39
In the Matter of Rite Aid Corporation,
p. 8.
40
Frank Ahrens, “History of Conflict for Rite Aid's Chief; Indictment Paints Picture of Grass as an Arrogant Bully,”
Washington Post,
June 22, 2002, p. E01.
41
David Voreakos, “Rite Aid's Secret Fraud Tapes Broke No Rules, U.S. Says,”
Bloomberg News,
October 16, 2002.
42
Thor Valdmanis, “Accounting Abracadabra: Cooking the Books Proves Common Trick of the Trade,”
USA Today,
August 11, 1998, p. 1B.
43
Claire Makin, “Short-Changed,”
Institutional Investor,
January 1993, p. 103.
44
Makin, p. 103.
45
Dirks v. SEC,
463 U.S. 646 (1983).
46
Carol J. Loomis, “Lies, Damned Lies, and Managed Earnings,”
Fortune,
August 2, 1999, p. 74.
47
Carol J. Loomis, “Hard Time? Hardly,”
Fortune,
March 18, 2002, p. 78.
48
Alan Murray, “Inflated Profits in Corporate Books Is Half the Story,”
Wall Street Journal,
July 2, 2002, p. A4.
49
Valdmanis, p. 1B.
50
Kevin J. Murphy, “Executive Compensation,” April 1998, p. 6 (available at
www.ssrn.com
).
51
Murphy, p. 90, Figure 15.
52
Murphy, p. 85, Figure 10.
53
The SEC confirmed this accounting treatment in 1992. “Executive Compensation Disclosure,” Securities Act Release No. 6962, October 16, 1992.
54
Murphy, p. 6.
55
Jeremy J. Siegel, “Stocks Are Still an Oasis,”
Wall Street Journal,
July 25, 2002.
56
Brian J. Hall and Kevin J. Murphy, “Stock Options for Undiversified Executives,”
National Bureau of Economic Research,
Working Paper 8052, December 2000, p. 37, Table 1.
57
“The Art, Not Science, of Risk Management, Controlling Risk,”
Risk,
June 1995, p. 2.
58
James Lacey, “The Consultants' Verdict: Still in Trouble,”
Derivatives Strategy,
March 1996.
59
Linda Keslar, “The View from the Boardroom: Under Control,”
Derivatives Strategy,
March 1996.
60
Keslar.
61
David Neustadt, “Morgan Stanley Touts Equity-Raising Vehicle,”
American Banker,
September 15, 1988, p. 2.
62
Tom Pratt, “GM's PERCS Help It Avoid Dilutive Offer; May Not Be Using Structure As Well As Avon,”
Investment Dealers' Digest,
May 20, 1991, p. 14.
63
Larry Light, “‘PERCS' You May Be Better Off Without,”
BusinessWeek,
April 20, 1992, p. 107; “Citicorp Raises $1 Billion in Capital but Dilutes Its Stock,”
Bloomberg News,
October 15, 1992.
64
Tom Pratt, “Salomon Prices Huge Decs Deal for American Express,”
Investment Dealers' Digest,
October 11, 1993, p. 16.
65
“Salomon's Debt Disguised as Equity Doesn't Impress Big Investors,”
Bloomberg News,
August 1, 1993.
66
Tom Pratt, “Salomon and Amex Unveil New Exchangeable Debt,”
Investment Dealers' Digest,
December 20, 1993, p. 16.
67
“Wall Street Profits May Drop after Record '93,”
Bloomberg News,
March 30, 1994.
68
Malcolm Berko, “More than a Five-and-Dime,”
Chicago Tribune,
July 15, 1994, p. N11.
69
Tom Pratt, “AMBAC ‘Prides' Deal Sunk by SEC Accounting Ruling; Broad Impact on Exchangeables Is Feared,”
Investment Dealers' Digest,
April 1, 1996, p. 10.
70
“MCN Financing Sells $115 Mln Preferred Securities Via Merrill,”
Bloomberg News,
March 20, 1997.
71
Michael Bender, “The Latest from the Convertibles Desk at Merrill: FELINE PRIDES,”
Investment Dealers' Digest,
April 7, 1997, p. 6.
Chapter 8: The Domino Effect
1
Robert J. McCartney, “'Skins Up By 10? You Make the Call: Punt or Put?”
Washington Post,
January 26, 1992, p. H1; “Swap Market: SocGen Mixes Super Bowl Hoopla and Trading Fever,”
Bloomberg News,
January 28, 1993; Alan Gersten, “Another Superbowl Disaster,”
Journal of Commerce,
February 2, 1993, p. 8A; Arthur M. Louis, “Derivatives Go to the Super Bowl,”
San Francisco Chronicle,
January 19, 1995, p. D1.

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