Frequently Asked Questions about Corporate Ethics
On September 4, 2003,
an investment bank, Goldman Sachs, admitted that it had
violated anti-fraud laws. Specifically, the firm misused material,
nonpublic information that the US Treasury would suspend issuance of the
30-year bond. The firm agreed to “pay over $9.3 million in
penalties.” On April 28, 2003, the same firm was found to have “issued
research reports that were not based on principles of fair dealing and
good faith .. contained exaggerated or unwarranted claims.. and/or
contained opinions for which there were no reasonable bases.” The
firm was fined $110 million dollars. That’s $119.3 million dollars
in fines in six months.
On September 3, 2003,
the New York State Attorney General announced it has
“obtained evidence of widespread illegal trading schemes,
‘late trading’ and ‘market timing,’ that
potentially cost mutual fund shareholders billions of dollars annually.
‘Late trading’ involves purchasing mutual fund shares at the
4:00 p.m. price after the market closes.” This, according to the
Attorney General, “is like allowing betting on a horse race after
the horses have crossed the finish line.”
In May, 2003, the SEC
disclosed that several “brokerage firms paid rivals that agreed to
publish positive reports on companies whose shares..they issued to the
public. This practice made it appear that a throng of believers were
recommending these companies' shares. This was false. From 1999 through
2001, for example, one firm
paid about $2.7 million to approximately 25 other investment banks for
these so-called research guarantees, regulators said. Nevertheless,
the same firm boasted in its annual report to shareholders that it had
come through investigations of analyst conflicts of interest with its
‘reputation for integrity’ maintained.”
On April 28, 2003,
every major US investment bank, including Merrill Lynch, the
aforementioned Goldman Sachs and Morgan Stanley, Citigroup, Credit
Suisse First Boston, Lehman Brothers Holdings, J.P. Morgan Chase, UBS
Warburg, and U.S. Bancorp Piper Jaffray, were found to have aided and
abetted efforts to defraud investors. The firms were fined a
total of $1.4 billion dollars by the SEC.
Some have long been concerned with the ability of market regulators,
“to protect investors and maintain the integrity of the securities
markets.”
On June 18, 1998, Creative Investment Research opposed the application,
approved by the Federal Reserve Board on September 23, 1998, by Travelers
Group Inc. to become a bank holding company by acquiring Citicorp. One
Travelers subsidiary, specifically, Salomon Smith Barney Inc., had a history
of defrauding investors: they tried to “monopolize” or
“corner the market” in a particular U.S. Treasury security. This
single fact should have rendered the proposed merger potentially injurious to
the public welfare and, therefore, prohibited.
It did not. The result?
On April 28, 2003, the merged firm, Citigroup Global Markets Inc., paid
fines totaling $400 million. The firm was
found to be defrauding investors and operating schemes in restraint of trade.
Since just about every institution charged with protecting the public
interest (accounting firms, public pension funds, the SEC and so-called self
regulatory organizations) have failed to do so, small investors will have to
reform the market.
How?
Investors can start by expressing displeasure with mutual funds,
investment banks, brokerage firms and investment analysts tied to fraudulent
market activities. (See: http://www.washingtonpost.com/wp-dyn/business/specials/fundprobe/
to keep up.)
We suggest they call, write, or email any of the firms fined by the SEC or
found by the New York State Attorney
General to have granted special trading privileges to selected hedge fund
investors:
Putnam Investments. Lawrence Lasser, CEO, Investors Way, Norwood, MA
02062. 1-800-225-1581. https://www.putnam.com/individual/index_contact_us.html
Janus Capital Group Inc., Mark Whiston, CEO, 100 Fillmore Street, Denver,
CO 80206. Phone: (303) 333-3863. Web Site: http://www.janus.com/
Steve Belgrad, 303-394-7706.
Strong Financial Corporation. Richard Strong, Chairman. 100 Heritage
Reserve, Menomonee Falls, WI 53051. www.Strong.com
Phone: 414-359-3619. Stephanie Truog. E-mail: struog@strong.com.
Bank of America, Kenneth D. Lewis, Chairman and CEO, BofA Corporate
Center, Charlotte, NC 28255. Phone: 704 386-6500. Website: http://www.bankofamerica.com Kevin
Stitt, 704-386-5667, or Eloise Hale, 704-387-0013, eloise.hale@bankofamerica.com.
Bank One Corp., James Dimon, Chairman of the Board and Chief Executive
Officer, 1 Bank One Plaza, Chicago, IL 60670. Phone: (312) 732-4000. Fax:
(614) 248-5624. Web Site: http://www.bankone.com/
Bear Stearns & Co. LLC - 383 Madison Avenue, New York, NY 10179.
Phone: (212) 272-2000. Fax: (212) 272-4785. Email: ir@bear.com
Credit Suisse First Boston Corp. - Paradeplatz 8, P.O. Box 1, Zurich,
Switzerland. Phone: (800) 269-2377. Tel. +41 1 333 45 70. Email: gerhard.beindorff@credit-suisse.com
Deutsche Bank - Taunusanlage 12, Frankfurt 60325, Germany. Phone: (212)
469-7125. Fax: (212) 469-7322. E-mail: db.ir@db.com
Goldman Sachs - 85 Broad Street, New York, NY 10004. Phone: (212)
902-1000. Fax: (212) 902-3000. Email: gs-investor-relations@gs.com
J.P. Morgan Chase & Co.- 270 Park Avenue, New York, NY 10017. Phone:
(212) 270-6000. Fax: (212) 270-1648. Email: marketing.and.communications@jpmorganchase.com
Lehman Brothers, Inc. - 745 Seventh Avenue, New York, NY 10019. Phone:
(212) 526-7000. Fax: (212) 526-3738. Email: sbutler@lehman.com
Merrill Lynch & Co., Inc. - 4 World Financial Center, New York, NY
10080. Phone: (212) 449-1000. http://www.ir.ml.com/comment.cfm
Morgan Stanley - 1585 Broadway, New York, NY 10036. Phone: (212) 761-4000.
Fax: (212) 761-0086. Email: genlfeedback@morganstanley.com
Salomon Smith Barney, Inc. Part of Citigroup. Business Address: 399 PARK
AVENUE, NEW YORK NY 10043 . Phone: 212-559-1000. http://www.smithbarney.com/help/contact/comments.html
UBS Warburg LLC - Bahnhofstrasse 45, Zurich, Switzerland. Phone: (212)
713-3641. Fax: (212) 713-1381. Contact: http://www.ubs.com/e/investors/contact_information/email_contacts/contact.html
To paraphrase Adam Smith, customers exercise the most effective discipline
over a firm...it is the fear of losing clients which restrains frauds and
corrects negligence.
Other things you can do:
Let others know you are concerned - write to the Federal Reserve Board (http://www.federalreserve.gov/feedback.cfm),
the SEC (enforcement@sec.gov),
Congress (U.S. Rep. Richard Baker, R-Baton Rouge, Chairman of the House
Subcommittee on Capital Markets, has done more to protect the investing
public than anyone else on Capitol Hill. Contact him at 2129 Rayburn House
Office Building, Washington, D.C. 20515, (202) 225-7502 or at http://www.house.gov/baker/)
Write
to the head of your mutual fund company. After all, these firms cost
investors billions.
Pick a major company you have stock in. Nominate your own member or
members for the Board of Directors. (This could be done in partnership with
other investors.)
Enough is enough. Really.
Orginally posted on January 27, 2003. Modified 11/11/03.
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