By DAVID MOON, Moon Capital
October 6, 2002
In 1979, the University of Tennessee football squad suffered an embarrassing
homecoming defeat at the hands of the Scarlet Knights of Rutgers. If
sports talk radio shows had been around, hosts would have called for the heads
of UT coaches, players and administrators. The Vols finished the season
with a dismal 7-5 record. A win over Rutgers ' in any fashion - would have
been welcome manna to all of the Vol faithful.
An ugly 35 to 14 UT victory over Rutgers in 2002, however, is cause for
concern and discontent among the 103,000 at Neyland Stadium and dozens others
watching on pay-per-view.
Isn't it amazing the difference made by a little change in perspective and
expectations? I think about that often as I read the daily tales of
scandal and outrage from Wall Street.
High-profile analysts are now being criminally investigated for issuing
research reports containing conclusions and recommendations influenced by the
investment banking fees (or prospective fees) generated by the subjects of the
supposed unbiased reports. This is news? Hardly. This practice
is as old as Wall Street itself. For twenty years of a bull stock market,
no one cared that research analysts were really just extensions of a brokerage
firm's marketing arm. As long as stock prices were going up, there were no
congressional inquiries, no state attorneys general investigations and no FBI
It is tempting to call the relationship between investment banking and
research 'Wall Street's dirty little secret,' but that isn't an accurate
term. It never has been a secret. It was a given. But with the
smell of blood in the water, regulators, legislators and financial masturbators
all want to claim some type of victory for the average investor. If that
is actually true, where were these public watchdogs five or ten years ago?
How about ten months ago?
Regulators are investigating whether or not CS First Boston allocated shares
of hot initial public offerings (IPOs) to people with whom it wanted to curry
favor. Business Week magazine calls the investigation one of a "Pandora's
box of potentially ruinous scandals." Maybe these regulators can also
investigate and figure out who killed Nicole Brown Simpson. Just as certain as
you are of the identity of Ms. Brown's murderer, I know the answer to the
$64,000 IPO question: of course CS First Boston gave its prized clients and
would-be clients shares of hot IPOs, virtually guaranteeing those lucky few an
easy and risk-free profit. Since the first stone mason invited Rome's
leading architect to be his guest at a leisurely afternoon of watching lions eat
Christians, businessmen have used whatever advantage and tools they have to gain
favor with their customers. Shares of an IPO are no different than tickets
to the World Series. Does that make it morally right? No. But
it doesn't make it wrong, either. And it doesn't make it illegal.
But it certainly shouldn't be a surprise to anyone, much less smart people with
law degrees who live in the middle of the world's financial capital.
Do not misinterpret any of these observations as justification of the many
illegal and immoral deeds perpetrated by corporate executives of which we are
only now learning. There are a bunch of people who need to go to jail '
directly to jail - without passing 'Go' or collecting another $200
million. Corporate executives who treated public company coffers as their
private piggy bank. Bankers, brokers and auditors who conspired to hide
those actions from shareholders. But much of what is currently
masquerading as investor protection and stiff regulatory action is nothing more
than public official grandstanding.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).