76 “Inside Long Term Capital,” p. 9.
77 Siconolfi, Raghavan, and Pacelle, p. A1.
78 Siconolfi, Raghavan, and Pacelle, p. A1.
79 “Inside Long Term Capital,” pp. 6-7.
80 Muehring, p. 69.
81 Muehring, p. 69.
82 “LTCM, Others Benefit from a Surge in Japanese Volatility,” Derivatives Week, Volume 4, January 30, 1995, pp. 1, 11.
83 “Inside Long Term Capital,” p. 8.
84 Muehring, p. 69.
85 Siconolfi, Raghavan, and Pacelle, p. A1.
86 Muehring, p. 69.
87 Siconolfi, Raghavan, and Pacelle, p. A1.
88 “Volatility Gives Greater Impetus to Hedge Funds,” Financial Times, July 22, 1996, p. 29.
89 James Aley, “Wall Street’s King Quant,” Fortune, February 5, 1996, p. 108.
90 Partnoy, F.I.A.S.C.O., pp. 259-260.
91 Aley, p. 108.
92 “Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management,” p. 30.
93 Kolman, p. 14.
94 Kolman, p. 15.
95 Siconolfi, Raghavan, and Pacelle, p. A1.
96 Mitchell Pacelle, “Three Hedge Funds, Hurt by Russia, Seek Protection of Bankruptcy Court,” Wall Street Journal, August 28, 1998, p. C11.
97 Michael Pettis, “Latin America Needs a Bond Market,” Wall Street Journal, September 4, 1998, p. A11.
98 “Emerging-Market Measles,” The Economist, August 22, 1998, p. 56.
99 Kolman, p. 15.
100 Lewis, p. 24.
101 Kolman, p. 16.
102 Dunbar. The principals of LTCM easily avoided federal prosecution, but they had more trouble dodging the taxman. In 2003, the Internal Revenue Service brought an action against LTCM, seeking to recover $75 million of taxes LTCM had avoided through complex financial engineering. Government officials had expressed concerns about tax shelters, and LTCM was infamous for its “tax avoidance” deals. The Senate Finance Committee had estimated that such shelters cost the government at least $10 billion in lost tax revenue. At the LTCM trial during summer 2003, the Nobel laureate Myron Scholes was asked whether taking a $100 million tax deduction for something LTCM paid $1 million for was a tax shelter. His response was, “I prefer not to go into definitions like that. It was a mitigation of taxes.” Ben White, “Long-Term Capital Case Puts Tax Shelters on Trial,” Washington Post, July 23, 2003, p. E01.
103 “Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management,” p. 42.
104 “Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management,” p. 29.
105 “Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management,” p. B-9.
106 Tanya Styblo Beder, “Guidelines for a Brave New Pension World,” Derivatives Strategy, November 1995, p. 59.
107 Joe Kolman, “Measuring Value at Risk,” Derivatives Strategy, November 21, 1994, p. 4.
108 Capital Market Risk Advisors, “SEC Market Risk Disclosure Survey—Results” (1998), pp. 2-3; Capital Market Risk Advisors, “Outlook 2000” (2000), p. 3.
109 Peter Coy, “Taking the Angst out of Taking a Gamble,” BusinessWeek, July 14, 1997, p. 52.
110 17 C.F.R. § 229.305 (1999); Release Nos. 33-7386; 34-38223; IC-22487; FR- 48, January 31, 1997, p. 37.
111 Hansell and Muehring, p. 49.
Chapter 9: The Last One to the Party
1 Susan Pulliam and Randall Smith, “Silicon Touch: For Frank Quattrone, With a Fief at CSFB, Tech Was a Gold Mine,” Wall Street Journal, May 3, 2001, p. A1.
2 Randall Smith, “High-Tech Banker Scores Deals with Mule and ‘Rocky Raccoon, ’” Wall Street Journal, September 24, 1999, p. C1.
3 Pulliam and Smith, p. A1.
4 Smith, p. C1.
5 Hal Lux, “Valley of the Dollars,” Institutional Investor, June 1998, p. 43.
6 Michael Siconolfi, “Under Pressure: At Morgan Stanley, Analysts Were Urged to Soften Harsh Views,” Wall Street Journal, July 14, 1992, p. A1.
7 Lux, p. 43.
8 Anita Raghavan, “Credit Suisse Hires Frank Quattrone in Bid to Boost High-Tech Bank Effort,” Wall Street Journal, July 1, 1998, p. B6.
9 Susan Pulliam, Randall Smith, Anita Raghavan, and Gregory Zuckerman, “Coming to Terms: CSFB Agrees to Pay $100 Million to Settle Twin IPO Investigations,” Wall Street Journal, December 11, 2001, p. A1.
10 Lux, p. 43.
11 Smith, p. C1.
12 Joann S. Lublin, “As IPO Looms, Software CEO Cedes Her Post,” Wall Street Journal, October 12, 1999, p. B1.
13 “Early Industry Reaction to F.I.A.S.C.O.: That #%@! Book,” Derivatives Strategy, November 1997.
14 “That Was Then,” The Economist, January 26, 2002.
15 John Maynard Keynes, A General Theory of Employment, Interest, and Money (1936; Prometheus Books 1997), p. 131; Donald C. Langevoort, “Taming the Animal Spirits of the Stock Markets: A Behavioral Approach to Securities Regulation,” Northwestern University Law Review, forthcoming.
16 Joseph J. Mezrich and Lakshmi Seshadri, “It Started in Mexico,” Morgan Stanley U.S. Investment Perspectives, March 6, 2002, p. 10.
17 Jeremy J. Siegel, Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies (McGraw-Hill Trade 2002).
18 Frank Easterbrook and Daniel Fischel, “Mandatory Disclosure and the Protection of Investors,” Virginia Law Review, Volume 70 (1984), p. 669.
19 Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance (Oxford University Press 2000); Robert Shiller, “Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?” American Economic Review, Volume 71 (1981), p. 421.
20 Andrei Shleifer and Robert Vishny, “The Limits of Arbitrage,” Journal of Finance, Volume 52 (1997), p. 35.
21 John Maynard Keynes, A Tract on Monetary Reform (1924; Prometheus Books 2000), p. 88.
22 Saul Hansell and Kevin Muehring, “Why Derivatives Rattle the Regulators,” Institutional Investor, September 1992, p. 49.
23 “Netscapades,” Institutional Investor, January 1996, p. 64.
24 Inmoo Lee, Scott Lochhead, Jay Ritter, and Quanshui Zhao, “The Costs of Raising Capital,” Journal of Financial Research, Volume 19 (1996), p. 59.
25 Mark Hulbert, “The Fantasy and the Fact of New Stock Offerings,” New York Times, January 2, 2000, Section 3, p. 8.
26 Frank Partnoy, “Strange New Math of Palm Inc.,” New York Times, March 15, 2000, p. A29.
27 John Cassidy, “Striking It Rich; The Rise and Fall of Popular Capitalism,” The New Yorker, January 14, 2002, p. 63.
28 “Affidavit in Support of Application for an Order Pursuant to General Business Law Section 354,” In the Matter of An Inquiry by Eliot Spitzer, Attorney General of the State of New York, Supreme Court of the State of New York, County of New York, April 2002, p. 21.
29 Nelson D. Schwartz, “Inside the Market’s Myth Machine,” Fortune, October 2, 2000, p. 114.
30 “Affidavit in Support of Application for an Order Pursuant to General Business Law Section 354,” p. 24.
31 Cassidy, p. 63.
32 Hulbert, Sec. 3, p. 8.
33 Charles Mackay, Memoirs of Extraordinary Delusions and the Madness of Crowds (1852; Metro Books 2002).
34 William G. Christie and Paul H. Schultz, “Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?” Journal of Finance, Volume 49 (1994), p. 1,813.
35 Frank Partnoy, F.I.A.S.C.O. (Penguin Books 1997), pp. 271-274.
36 Lux, p. 43.
37 Securities and Exchange Commission v. Credit Suisse First Boston, Complaint, U.S. District Court, District of Columbia, January 22, 2002, paragraph 47.
38 Securities and Exchange Commission v. Credit Suisse First Boston, paragraph 48.
39 Securities and Exchange Commission v. Credit Suisse First Boston, paragraph 50.
40 Pulliam and Smith, p. A1.
41 “That Was Then.”
; 42 Susan Pulliam and Randall Smith, “CSFB Official Set Quota for Repayment of IPO Profits in Form of Commission,” Wall Street Journal, August 10, 2001, p. C1.
43 Securities and Exchange Commission v. Credit Suisse First Boston, paragraphs 35, 38, 40, 41, and 43.
44 Securities and Exchange Commission v. Credit Suisse First Boston, paragraph 36.
45 Pulliam, Smith, Raghavan, and Zuckerman, p. A1.
46 Ian Kerr, “Barclays Capital Wins the Mind War,” Financial News, March 5, 2001, p. 1.
47 Pulliam and Smith, “Silicon Touch: For Frank Quattrone, With a Fief at CSFB, Tech Was a Gold Mine,” p. A1.
48 Randall Smith, Frontline interview, PBS, May 2001.
49 Administrative Complaint, In the Matter of: Credit Suisse First Boston Corp., No. E-2002-41, October 21, 2002, pp. 5-6.
50 Pulliam and Smith, “CSFB Official Set Quota for Repayment of IPO Profits in Form of Commission,” p. C1.
51 Randall Smith and Susan Pulliam, “CSFB Says It Has Fired 3 Brokers,” Wall Street Journal, June 29, 2001, p. C1.
52 NASD Rule 2440.
53 Susan Pulliam and Randall Smith, “CSFB’s Defense: We Didn’t Break IPO Rules,” Wall Street Journal, June 12, 2001, p. C1.
54 Tom Cahill, “CSFB’s Mack Targets Goldman, Morgan Stanley: Mission Possible?” Bloomberg News, January 17, 2002.
55 Cahill.
56 Emily Thornton, “Can This Be a Wall Street Reformer?” BusinessWeek, September 23, 2002, p. 90.
57 Patrick McGeehan, “His Rallying Cry at First Boston: Smaller, Cleaner, Fairer,” New York Times, January 27, 2002, Sec. 3, p. 1.
58 Emily Thornton, “CSFB’s Not-So-Painful Settlement,” BusinessWeek, December 31, 2001, p. 10.
59 David Wells, “C. E. Unterberg’s John Gutfreund Comments on CSFB IPO Probe,” Bloomberg News, December 11, 2001.
60 Pulliam, Smith, Raghavan, and Zuckerman, p. A1.
61 Siconolfi, p. A1.
62 Gretchen Morgenson, “Requiem for an Honorable Profession,” New York Times, May 5, 2002, Sec. 3, p. 1.
63 Charles Gasparino, “Analysts’ Contracts Link Pay to Deal Work,” Wall Street Journal, May 6, 2002, p. C1.
64 Debbie Galant, “Financial Misstatements,” Institutional Investor, July 1993, p. 171.
65 John C. Coffee Jr., “Guarding the Gatekeepers,” New York Times, May 13, 2002, p. A19.
66 Debbie Galant, “Don’t Ask, Don’t Tell,” Institutional Investor, September 1995, p. 159.
67 “Affidavit in Support of Application for an Order Pursuant to General Business Law Section 354,” p. 21.
68 “Affidavit in Support of Application for an Order Pursuant to General Business Law Section 354,” pp. 8-9.
69 “Affidavit in Support of Application for an Order Pursuant to General Business Law Section 354,” p. 10.
70 “Affidavit in Support of Application for an Order Pursuant to General Business Law Section 354,” p. 11.
71 “Affidavit in Support of Application for an Order Pursuant to General Business Law Section 354,” p. 12.
72 “Affidavit in Support of Application for an Order Pursuant to General Business Law Section 354,” p. 11.
73 “Affidavit in Support of Application for an Order Pursuant to General Business Law Section 354,” p. 19.
74 “Affidavit in Support of Application for an Order Pursuant to General Business Law Section 354,” p. 25.
75 “Affidavit in Support of Application for an Order Pursuant to General Business Law Section 354,” p. 17.
76 Allan Sloan, “On Wall Street, Don’t Cry for Henry Blodget,” Newsweek, November 15, 2001.
77 In the Matter of Microstrategy Inc., Securities Exchange Act Release No. 43724, Administrative Proceeding File No. 3-10388, December 14, 2000.
78 Charles Gasparino, Susanne Craig, and Randall Smith, “Salomon Faces Questions on IPO,” Wall Street Journal, July 10, 2002, p. C1.
79 Code of Federal Regulations, Volume 17, Section 243.100 (2000); “Selective Disclosure and Insider Trading,” Exchange Act Release No. 43,154 (August 20, 2000).
Chapter 10: The World’s Greatest Company
1 Johnny Roberts and Evan Thomas, “Enron’s Dirty Laundry,” Newsweek, March 11, 2002, p. 22; Valentine Low, “Sex, Money and Power . . . The Fatal Mix that Spelt the End of Enron,” Evening Standard, March 6, 2002, p. 19; Patricia Sellers, “Women, Sex & Power,” Fortune, August 5, 1996, p. 42.
2 Bryan Gruley and Rebecca Smith, “Anatomy of a Fall,” Wall Street Journal, April 26, 2002, p. A1.
3 Loren Steffy, “Enron’s Original Sins: Lies Began Long before Current Crisis,” Bloomberg News, March 20, 2002.
4 “Wordsmiths Play the Name Game,” United Press International, July 6, 1986.
5 Steffy.
6 “U.S. Attorney Probing Alleged Illegal Trading by Former Enron Oil Executives,” Platt’s Oilgram News, June 15, 1988, p. 4.
7 Tricia Crisafulli, “Bulk Oil, Nichimen, Among Defendants in Enron Suit Charging Fraudulent Trading,” Platt’s Oilgram News, June 16, 1998, p. 4.
8 “Former Enron Oil Officials Charged with Fraud, Tax Violations by U.S. Attorney,” Platt’s Oilgram News, December 21, 1989, p. 3.
9 Crisafulli, p. 4.
10 Crisafulli, p. 4.
11 Mary Chung, Walid El-Gabry, John Labate, and Sheila McNulty, “Earlier Scandal Pointed to Need for Controls,” Financial Times, January 16, 2002, p. 24.
12 Chung, El-Gabry, Labate, and McNulty, p. 24.
13 Russell Hubbard, “Enron Used Partnerships to Mask Debt, Holders Charge,” Bloomberg News, November 6, 2001.
14 Loren Steffy, “Enron Ex-CFO Fastow Set Up Partnerships That Led to Failure,” Bloomberg News, December 19, 2001.
15 Kurt Eichenwald, “Enron’s Collapse; Audacious Climb to Success Ended in a Dizzying Plunge,” New York Times, January 13, 2002, p. A1.
16 Jamie Dettmer, “Damaging Limitation,” Business A.M., January 25, 2002; Nick Cohen, “Influent, Affluent, Mostly Effluent; Hold on a Minute,” Observer, September 6, 1998, p. 27.
17 Hubbard.
18 “In the City,” Private Eye, February 21, 2002.
19 Ronald Fink, “Partnerships within Partnerships,” CFO Magazine, January 1, 2002, p. 16.
20 “SEC No-Action Letter,” April 26, 1994.
21 “Corporate Governance Failure at Enron,” Business Line, March 4, 2002.
22 Dan Morgan and Kathleen Day, “For Gramms, Enron Is Hard to Escape,” Washington Post, January 25, 2002, p. A18.
23 “Power Marketers Kick Off Campaigns to Become Household Word in Energy,” Energy Report, January 20, 1997.
24 Enron 2000 Annual Report, p. 45.
25 Enron 2000 Annual Report, p. 44.
26 Charles Gasparino, Susanne Craig, and Randall Smith, “Salomon Faces Questions on IPO,” Wall Street Journal, July 10, 2002, p. C1.
27 Steffy, “Enron Ex-CFO Fastow Set Up Partnerships That Led to Failure.”
28 Steffy, “Enron Ex-CFO Fastow Set Up Partnerships That Led to Failure.”
29 Since 1982, Financial Accounting Standard No. 57, entitled Related Party Disclosures, had required that companies disclose the nature of relationships they have with related parties, and describe transactions with them.
30 Report of Investigation by the Special Investigative Committee of the Board of Directors of Enron Corp., February 1, 2002, pp. 54-55.
31 Enron Form 8-K Filing, November 8, 2001, p. 9.
32 Enron Form 8-K Filing, November 8, 2001, p. 9.
33 April Witt and Peter Behr, “Losses, Conflicts Threaten Survival; CFO Fastow Ousted in Probe of Profits,” Washington Post, July 31, 2002, p. A1; Michael A. Hiltzik and David Streitfeld, “Ex-Enron Employees Suggest Andersen Helped Veil Deals,” Los Angeles Times, January 17, 2002, p. A1.
34 Tom Fowler, “Enron Hedging Web at Scandal’s Core,” Houston Chronicle, June 28, 2002, p. 2.
35 William Roberts and Jeff Bliss, “Merrill Executive Denies Firm Helped Enron Mask Its Liabilities,�
�� Bloomberg News, July 30, 2002; Otis Bilodeau, “In Eye of Enron Storm, A Partnership Is Rocked,” Delaware Law Weekly, February 27, 2002, p. D4; Laurie Cohen and Flynn McRoberts, “Enron Scandals Crucial Recruit,” Chicago Tribune, February 24, 2002, p. C1.
36 “Powers Report,” p. 91.
37 “Powers Report,” pp. 138-140.
38 Tom Fowler, “More Light May Be Shed on Enron,” Houston Chronicle, June 29, 2002, p. 1.
39 Peter Spiegel, “The Architect of Enron’s Downfall,” Financial Times, May 20, 2002.
40 Loren Steffy, “What a Tangled Financial Web He Wove,” National Post, December 20, 2001, p. FP9.
41 Jonathan Weil, “Enron’s Auditors Debated Partnership Losses,” Wall Street Journal, April 3, 2002, p. C1.
42 Enron 2000 Annual Report, p. 49, n.16.
43 Daniel Fisher, “Shell Game,” Forbes, January 7, 2002, p. 52.
44 Enron 2000 Annual Report, p. 44, note 11.
45 “Powers Report,” pp. 98-99.
46 David Barboza and Barnaby J. Feder, “Enron’s Many Strands: The Transactions; Enron’s Swap with Qwest Is Questioned,” New York Times, March 29, 2002, p. C1.
47 David Barboza, “Former Officials Say Enron Hid Gains during Crisis in California,” New York Times, June 23, 2002, p. A1.
48 Barboza, p. A21.
49 Barboza, p. A1.
50 Barboza, p. A21.
51 Jeff Manning, “Opportunism Part of Job, Former Enron Traders Say,” Oregonian, May 15, 2002, p. C1.
52 David Barboza, “Enron Trader Had a Year to Boast of, Even If . . . ,” New York Times, July 9, 2002, p. C1.
53 Burton Malkiel, “Watchdogs & Lapdogs,” Wall Street Journal, January 16, 2002, p. A16.
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