Where do I go to get that free cash?

By DAVID MOON, Moon Capital Management
May 11, 2003

Could someone please show me where the line forms to pick up my free money? Everybody else seems to be getting some, or at least trying. I just want to know where I go to apply.

Copying the success of individuals and lawyers, the states are trying to balance their budgets with funds from tobacco companies. Money that was supposed to pay for anti-smoking education is, instead, being used to operate prisons and fund economic development efforts.

When people discover that McDonald's coffee is hot or that french fries are fattening, it's time to get a lawyer and enter the free money lotto. People don't even expect to pay to go to the dentist any more; some ubiquitous, yet unseen insurance company is supposed to foot the bill.

Tennesseans salivate at the prospect of a state lottery, either because they expect to exchange their ten dollar lotto ticket for a $100 million grand prize or their kids will get free tuition out of the deal.

Everyone wants something for nothing.

The recently announced settlement between ten Wall Street firms, the New York attorney general and the Securities and Exchange Commission proves the point.

Elliot Spitzer, the attorney general of New York, accused Wall Street research of not really being research. Analysts couldn't say what they believed about the companies covered in these reports or their employers would never get any (much more lucrative) investment banking assignments from the subjects of these reports. As a result, Wall Street firms seldom, if ever, issued 'Sell' recommendations on stocks. 'Hold' meant 'Sell.' 'Buy' meant 'Hold.' 'Strong Buy' meant 'Maybe Buy.' And 'Super Duper Aggressive Buy' meant 'Really Buy.' The beauty of this system was that everyone in the investment industry knew the true meaning behind these code phrases.

Attorney General Spitzer argued that it was the small individual investors who were hurt by this system, because they didn't know the secret code to decipher the recommendations. Thus was born a $1.4 billion settlement pool. Some portion of this money will be paid to individual investors who relied on Wall Street reports to buy certain high-tech stocks and were mislead by these supposedly evil analysts.
The settlement is suppose to compensate the little guy, the investor who never knew how the game was played.

Guess who also wants some of the settlement money?

Mutual fund giant Janus.

Janus proudly heralds things like their 'intense research and detailed financial modeling' and 'rigorous fundamental and quantitative analysis.' Their television ads tout their visits to companies to determine their true values.

And now Janus claims their fund managers didn't understand the difference between a Wall Street 'Buy' and 'Hold' recommendation? Come on. Remember that the next time you see an ad promoting the intense Janus research process. If Janus really was a victim in the great Wall Street research scandal, they should be too embarrassed to admit it. But there no longer seems to be any shame in doing whatever it takes to get free money.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

Add me to your commentary distribution list.

MCM website