Tech wreck spawns white-collar crime

By Neville Bennett

Friday 4th October 2002

The party is over. The Dow and Nasdaq are at five- to six-year lows. Some clearing up has started, with changes to indices. Moreover, a new mood of vengeance is emerging, with various US authorities intent on catching the white-collar criminals, who apparently damaged so many lives and ruined their saving plans.

One important casualty is European. In 1997 the Frankfurt Stock Exchange launched the Neuer Markt (new market) for the huge flow of stock offerings. The index has crashed 95% and is to be replaced in 2003.

More than failure taints it. Some executives are charged with having manipulated prices. It may leave a few crusts for Nasdaq Europe but it has its own problems with an 80% fall in two years and a decision to scrap Nasdaq Japan.

Formerly, when the bull market reigned, Nasdaq directors conceived a vision of non-stop trading around the world. There were exchanges in the US, Europe and Japan.

Masayoshi Son and his Softbank empire backed the Japanese venture. It did attract business but its losses were $US45 million last year. Softbank shares, which sold for ¥60,000 in 2000, have slumped to 1100.

Amazingly, Nasdaq executives still talk big. Its president says winding down operations in Japan "in no way changes our commitment to our international strategy ... we will continue to leverage market opportunities."

The Neuer Markt and Nasdaq Japan both specialised in IPOs (initial public offerings). They were scandalous. Some interesting detail emerged this week as the US Congress continues is investigations. Former WorldCom CEO Bernie Ebbers made $US11 million from trading IPOs provided by investment bank Salomon Smith Barney.

The bank courted Mr Ebbers and provided him with stock at the issue price. This was, in effect, a licence to print money, as many stocks were oversubscribed. Mr Ebbers made his profit by instantly selling the stock.

The Congress is interested in finding out whether the IPOs were a bribe to obtain investment banking business and whether "spinning" was involved that is, permitting their investors' friends to go back in time and purchase at the offering price after the market price had already soared.

Meanwhile, the National Association of Securities Dealers has levied a fine of $US400,000 on two CS First Boston executives for charging excessive commissions to IPO buyers in the bull market days. This is merely another act in a developing saga. CS First Boston has already paid $US100 million in fines. It operated some sort of profit sharing with 300 accounts.

Getting revenge is politically correct at present and New York State Attorney General Eliot Spitzer is trying to force executives to give back all the money they made by manipulating IPOs.

* US federal prosecutors yesterday filed charges against former Enron chief financial officer Andrew Fastow, allegedly the mastermind behind the complex web of accounting that helped the energy trader obscure its financial condition until its spectacular collapse last year.

In a criminal complaint unsealed in Houston, prosecutors charged Mr Fastow with securities, mail and wire fraud, as well as money laundering and conspiracy, for actions between 1997 and 2001 that officials say helped Enron trick investors, while he and his associates allegedly pocketed millions.

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