59 James Sterngold, “Merrill Lynch Puts Bond Loss at $250 Million,” New York Times, April 30, 1987, p. A1.
60 Sterngold, p. A1.
61 In the Matter of John H. Gutfreund, Thomas W. Strauss, and John W. Meriwether, p. 12.
62 Mayer, p. 214.
63 In the Matter of John H. Gutfreund, Thomas W. Strauss, and John W. Meriwether, pp. 14-15.
64 “Basham Leaving Treasury Department,” United Press International, August 5, 1991; Michael Vachon, “Basham to Smith Barney,” Investment Dealers’ Digest, August 19, 1991, p. 15.
65 Susan Antilla, “Ex-Salomon Trader Gets 4 Months,” New York Times, December 15, 1993, p. D2.
66 “Now Hear This,” Fortune, January 10, 1994, p. 20.
67 Keith Bradsher, “Former Salomon Trader to Pay $1.1 Million Fine,” New York Times, July 15, 1994, p. D1; Antilla, p. D2.
68 Katherine Burton and Liz Goldenberg, “Ten Years Ago, Salomon Treasury Scandal Changed Traders’ World,” Bloomberg News, August 9, 2001.
69 Burton and Goldenberg.
70 Peter Woodifield, “Gutfreund Joins Unterberg, Towbin as Senior Managing Director,” Bloomberg News, November 14, 2001.
71 Ron Cooper, “Return of the King,” Investment Dealers’ Digest, November 19, 2001.
72 Burton and Goldenberg.
73 Dunbar, p. 130.
74 Lowenstein, pp. 37-38.
Chapter 5: A New Breed of Speculator
1 Robert Hurtado, “Fed’s Move Jolts Stock and Bond Markets,” New York Times, February 5, 1994, Sec. 1, p. 37.
2 Jonathan R. Macey, “Derivative Instruments: Lessons for the Regulatory State,” Journal of Corporation Law, Fall 1995, p. 93.
3 In re County of Orange, U.S. Bankruptcy Court, Central District of California, Case No. SA 94-22272 JR, County of Orange v. Morgan Stanley & Co., Complaint, June 11, 1996, p. 27.
4 Laura Jereski, “Merrill Lynch Saw Big Profit on Orange Fund,” Wall Street Journal, January 26, 1995, p. A4.
5 Tim Quinson, “A Tough Week, and It’s Only Wednesday,” Bloomberg News, December 7, 1994, p. 2.
6 In re County of Orange, p. 30.
7 In re County of Orange, pp. 41-42, 72.
8 In re County of Orange, p. 41.
9 In re County of Orange, p. 43.
10 Sallie Hofmeister, “California Fund Woes Worsening,” New York Times, December 3, 1994, p. C1.
11 Katherine Burton, John Pickering, and Dave Liedtka, “Credit Agencies Dropped Ball, Investors Say,” Bloomberg News, December 5, 1994, p. 1.
12 “Orange County Crisis: The Fallout—Wall Street Races to Sell $10 Billion in Collateral,” Dow Jones News, December 8, 1994, p. 2.
13 Laura Jereski, “Salomon’s $8.1 Billion Derivative Offer Seen by Other Firms as Latecomer’s Bid,” Wall Street Journal, March 27, 1995, p. A4.
14 Jereski, p. A4.
15 “Orange County Crisis—Local Heroes: Public Finance Chiefs Are Often Very Boring; That’s the Good News,” Dow Jones News, December 8, 1994, p. 3.
16 “Orange County Crisis—Local Heroes,” p. 1.
17 “Orange County Crisis—Local Heroes,” p. 2.
18 Jill J. Barshay, “Star Struck: How Piper Tied Its Fortunes to a Maverick,” Minneapolis Star Tribune, February 8, 1999, p. 1D.
19 In the Matter of Piper Capital Management, Inc. et al., Administrative Proceeding File No. 3-9657, November 30, 2000, p. 13.
20 Karen Padley, “Piper Jaffray Lobbied to Let Minnesota Towns Invest in Bond Fund,” Bloomberg News, August 26, 1994, p. 1.
21 Gary Weiss, “The $700 Million Mystery,” BusinessWeek, December 18, 1995, p. 76.
22 ABF v. Askin Complaint, March 27, 1996, p. 20.
23 Weiss, p. 77.
24 “What Went Wrong at Granite,” Derivatives Strategy, April 4, 1994, p. 5.
25 “David Askin’s Friends,” Derivatives Strategy, April 25, 1994, p. 5.
26 David Kleinbard, “U.S. Labor Department Investigates Derivatives Use by Two Funds,” Bloomberg News, October 27, 1994, p. 1.
27 ABF v. Askin Complaint, pp. 32-33.
28 ABF v. Askin Complaint, p. 61.
29 ABF v. Askin Complaint, p. 62.
30 Barshay, p. 1D.
31 In the Matter of Piper Capital Management, Inc. et al., p. 6.
32 Susan E. Kuhn, “He Lost How Much? $800 Million?” Fortune, September 19, 1994, p. 38.
33 G. Bruce Knecht, “Piper Manager’s Loss May Total $700 Million,” Wall Street Journal, August 25, 1994, p. C1.
34 Kuhn, p. 38.
35 In the Matter of Piper Capital Management, Inc. et al., p. 6.
36 Knecht, p. C1.
37 Kevin Shinkle and Tim Quinson, “Kidder Spends $7 Mln to Cover Money Market Losses,” Bloomberg News, August 31, 1994, p. 1.
38 David Kleinbard, “U.S. Labor Department Investigates Derivatives Use by Two Funds,” Bloomberg News, October 27, 1994, p. 1.
39 Tim Quinson and Matt Rees, “United Services Spends $93 Mln to Shore Up Money Fund,” Bloomberg News, September 29, 1994, p. 1.
40 Fidelity Investments, “Letter from Edward C. Johnson III, Chairman,” June 1, 1994, p. 2.
41 In the Matter of NationsSecurities and NationsBank, N.A., Administrative Proceeding File No. 3-9596, Securities Act Release No. 7532, Exchange Act Release No. 39947, May 4, 1998.
42 In the Matter of NationsSecurities and NationsBank, N.A., p. 375.
43 Al Ehrbar, “The Great Bond Market Massacre,” Fortune, October 17, 1994, p. 77.
44 “The World According to Stan Jonas,” Derivatives Strategy, November 1995, p. 38.
45 Ehrbar, p. 77.
46 Matt Rees and Tim Quinson, “Mutual Fund Directors Need More Derivatives Savvy,” Bloomberg News, May 26, 1994, p. 1.
47 Christian Plumb, “Lehman Brothers VP Charged with Using Jury Imposter,” Bloomberg News, January 20, 1995.
Chapter 6: Morals of the Marketplace
1 “New School Slates Futures and Options Conference,” Securities Week, September 30, 1985, p. 9.
2 Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928).
3 “Interim Report to the Trustees and Members of the Common Fund on First Capital Strategists,” Cravath, Swaine & Moore, January 4, 1996.
4 Hal Lux, “The Insider: Proposed SEC Chief Arthur Levitt Jr. Knows Almost Everyone on Wall Street—Which Is Good News and Bad,” Institutional Investor, May 31, 1993, p. 16.
5 Lux, p. 16.
6 Kevin J. Murphy, “Politics, Economics, and Executive Compensation,” University of Cincinnati Law Review, Volume 63 (1995), pp. 713, 738.
7 Lux, p. 16.
8 David A. Vise, “Levitt Set to Sell Stake in Roll Call,” Washington Post, June 5, 1993, p. C1.
9 Lux, p. 16.
10 Claudia Maclachlan, “SEC Nominee Says He’ll Study Curbs on Securities Suits,” National Law Journal, July 26, 1993, p. 15.
11 “SEC Nominee Says Strict Rules Make U.S. Markets Attractive,” Thomson’s International Banking Regulator, July 19, 1993, p. 2.
12 Moneyline, Cable News Network, September 9, 1993.
13 Hal Lux, “Levitt’s Last Testimony,” Institutional Investor, January 2001, p. 74.
14 David Kleinbard, “CFTC Study Finds Little Risk from Derivatives,” Bloomberg News, October 26, 1993, p. 1.
15 Anne Schwimmer, “When ISDA Comes Calling . . . ,” Investment Dealers’ Digest, November 21, 1994, p. 16.
16 “Financial Derivatives: Market Overview and Supervisory Concerns,” A Report Prepared by House Banking Committee Minority Staff, November 1993.
17 Brett D. Fromson, “Some Industry Executives See Dangers of Derivatives Causing ‘Meltdown,’” Washington Post, October 28, 1993, p. A29.
18 “Levitt Calls for More Fund Oversight by Directors,” Bloomberg News, March 21, 1994, p. 1.
19 “Now Hear This,” Fortune, October 31, 1994, p. 21.
20 Antony J. Michels, “Is Your Money Fund Safe?” Fortune, October 3, 1994, p. 40.
; 21 Erick Schonfeld, “A Broken Buck,” Fortune, October 31, 1994, p. 21.
22 “Financial Derivatives: Actions Needed to Protect the System,” U.S. General Accounting Office, May 18, 1994.
23 “The GAO Report on Financial Derivatives: Good Facts and Bad Conclusions,” An ISDA Position Paper, May 27, 1994, p. 1.
24 Bank for International Settlements, “Central Bank Survey of Derivatives Market Activity,” December 19, 1995, p. 1.
25 Fred S. McChesney, “Economics, Law and Science in the Corporate Field: A Critique of Eisenberg,” Columbia Law Review, Volume 89 (1989), pp. 1530, 1544.
26 Sean M. Flanagan, “The Rise of a Trade Association: Group Interactions within the International Swaps and Derivatives Association,” Harvard Negotiation Law Review, Volume 6, Spring 2001, p. 238, note 136.
27 Dean Tomasula, “Study Showing Derivatives Profits at Banks Criticized as One-Sided,” American Banker, October 19, 1994.
28 Lynn Stevens Hume, “Regulators, Industry Give Differing Views on Bill; Leach Blasts Bank Official for Misstating Provisions,” The Bond Buyer, July 13, 1994, p. 6.
29 Hume, p. 6.
30 Hume, p. 6.
31 Schwimmer, p. 16.
32 Saul Hansell and Kevin Muehring, “Why Derivatives Rattle the Regulators,” Institutional Investor, September 1992, p. 49.
33 Schwimmer, p. 16.
34 Schwimmer, p. 16.
35 Dean Tomasula, “Congress Expected to Take Heat off the Swaps Market,” American Banker, October 14, 1994, p. 22.
36 Tomasula, p. 22.
37 Michael Peltz, “Congress’s Lame Assault on Derivatives,” Institutional Investor, December 1994, p. 65.
38 “The Risk Management Improvement and Derivatives Oversight Act,” H.R. 20, 104th Congress, 1st Session (1995).
39 “The Derivatives Safety and Soundness Supervision Act of 1995,” H.R. 31, 104th Congress, 1st Session (1995).
40 “The Derivatives Limitations Act of 1995,” S. 557, 104th Congress, 1st Session (1995).
41 “The Derivatives Dealers Act of 1995,” H.R. 1063, 104th Congress, 1st Session (1995).
42 Ray J. Groves, “Here’s the Annual Report. Got a Few Hours?” Wall Street Journal, August 4, 1994, p. A12.
43 “Derivatives Accounting Disclosure and Market Surveillance,” International Swaps and Derivatives Association Conference, September 25, 1996, p. 7.
44 Murphy, p. 726.
45 Murphy, p. 713.
46 Section 162(m) of the Internal Revenue Code was amended by the Omnibus Budget Reconciliation Act of 1993, Public Law No. 103-66, 13,211 (1993).
47 Murphy, note 68.
48 Code of Federal Regulations, Volume 26, Section 1.162-27(e)(2).
49 Code of Federal Regulations, Volume 26, Section 1.162-27(e)(2)(vi).
50 APB Opinion No. 25 (1972).
51 “Executive Compensation Disclosure,” Exchange Act Release No. 33-692, October 21, 1992.
52 Julie Kosterlitz and Neil Munro, “Full Disclosure,” National Journal, February 23, 2002, p. 5.
53 “Legislation Introduced to Overturn FASB Stock Option Proposal,” Journal of Accountancy, Volume 176, October 1993, p. 15.
54 Financial Accounting Standard No. 119, October 1994.
55 “Legislation Introduced to Overturn FASB Stock Option Proposal,” p. 7.
56 “Proposed Amendments to Require Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments,” Securities Act Release No. 7250, Exchange Act Release No. 36643, December 28, 1995.
57 Release Nos. 33-7386; 34-38223; IC-22487; FR-48, January 31, 1997.
58 Rahul Jacob, “The SEC Zeroes in on Derivatives,” Fortune, November 28, 1995, p. 15.
59 Release Nos. 33-7386; 34-38223; IC-22487; FR-48, p. 26, note 67.
60 “BT, BBL Lead with Forex Structures that Skirt FASB Accounting Standards,” Derivatives Week, Volume 4, March 6, 1995, pp. 1, 11.
61 Todd E. Petzel, “Derivatives: Market and Regulatory Dynamics,” Journal of Corporation Law, Fall 1995, p. 108.
62 Henry T. C. Hu, “Hedging Expectations: ‘Derivative Reality’ and the Law and Finance of the Corporate Objective,” Texas Law Review, Volume 73, April 1995, p. 985; Lynn A. Stout, “Betting the Bank: How Derivatives Trading under Conditions of Uncertainty Can Increase Risks and Erode Returns in Financial Markets,” Journal of Corporation Law, Fall 1995, p. 53.
63 Joseph A. Grundfest, “The Limited Future of Unlimited Liability: A Capital Markets Perspective,” Yale Law Journal, Volume 102 (1992), pp. 410-411.
64 Minutes of Meeting of the Federal Advisory Council and the Board of Governors, May 13, 1994.
65 Laura Jereski, “Mortgage Securities Weaken Fed’s Power,” Wall Street Journal, August 30, 1994, p. C1.
66 Frontline (PBS Interview), May 2001. For a more thorough discussion of the SEC’s approach to such investigations, see William R. McLucas, J. Lynn Taylor, and Susan A. Mathews, “A Practitioner’s Guide to the SEC’s Investigative and Enforcement Process,” Temple Law Review, Volume 70, Spring 1997, p. 53.
67 “Hearings before the Subcommittee on Securities of the Senate Committee on Banking, Housing, and Urban Affairs on S. 647 to Amend the Federal Securities Laws to Revise Enforcement Remedies for Civil Violations of Those Laws,” 101st Cong. (1990), pp. 56-57.
68 In the Matter of BT Securities Corp, S.E.C. Release Nos. 33-7124, 34-35136, December 22, 1994.
69 In the Matter of Gary S. Missner, 62 S.E.C. Docket 265, SEC Release Nos. 33- 7304, 34-37301, June 11, 1996.
70 In the Matter of Mitchell A. Vazquez, 61 S.E.C. Docket 858, SEC Release Nos. 33-7269, 34-36906, February 29, 1996.
71 In the Matter of Gary S. Missner.
72 In the Matter of Mitchell A. Vazquez.
73 Gary S. Missner, letter to Fortune, May 1, 1995, p. 7.
74 In the Matter of Global Capital Investment LLC and Mitchell Vazquez, CFTC Docket No. 02-07, February 27, 2002.
75 “Ex-Trader Cleared of Charges,” New York Times, June 9, 2000, p. C24; Wall Street Journal, June 12, 2000, p. A26.
76 SEC v. Lavin, 111 F.3d 921 (D.C. Cir. 1997); SEC v. Lavin, 937 F. Supp. 23 (D.C. Cir. 1996).
77 In re BT Securities Corp., Exchange Act Release Act No. 35,136, December 22, 1994, p. 1193.
78 In the Matter of Gibson Greetings, File No. 3-8866, Exchange Act Release No. 36357, October 11, 1995.
79 Edmund L. Andrews, “Embattled Bankers Trust Chairman Resigns,” New York Times, June 30, 1999, p. C4.
80 Liz Moyer, “Ex-Bankers Trust Chairman Resigns from Deutsche Bank,” The American Banker, June 30, 1999, p. 5.
81 In the Matter of Piper Capital Management, Inc. et al., Administrative Proceeding File No. 3-9657, November 30, 2000, p. 9.
82 In the Matter of Piper Capital Management, Inc. et al., p. 9.
83 In the Matter of Piper Capital Management, Inc. et al., pp. 66, 70.
84 SEC v. CS First Boston Corp., Litigation Release No. 15160, November 20, 1996, pp. 1-2.
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, Co
mplaint, 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.
Infectious Greed Page 56