Confessions of a Wall Street Analyst (34 page)

E
bbers, silent but stoic at the Congressional hearings, with his high-powered defense attorney, Reid Weingarten (left). July 8, 2002.
(AP/Wide World Photos)

J
ack Grubman in front of the House Financial Services Committee: Asked whether he knew about special IPO allocations made to various telecom executives, Grubman waffled “I’m not saying no, I’m not saying yes. I just can’t recall.” July 8, 2002.
(AP/Wide World Photos)

S
cott Sullivan, former WorldCom CFO, in front of the House Financial Services Committee. July 8, 2002. Sullivan’s fraudulent adjustments to WorldCom’s books totaled a mind-boggling $11 billion. He pleaded guilty to numerous criminal charges yet was a highly effective witness against Ebbers.
(AP/Wide World Photos)

H
andcuffed Scott Sullivan (left) is led by federal agents from the posh New York City Hotel Elysée at 7 a.m. on the morning of August 1, 2002. He was charged with seven counts of securities fraud, conspiracy and filing false statements and was later sentenced to five years in federal prison.
(AP/Wide World Photos)

G
lobal Crossing executives take oath before testifying before the House Energy and Commerce Subcommittee: (from right) Chairman Gary Winnick, CFO Dan Cohrs, Executive Vice President of Finance Joe Perrone, President David Walsh, and former counsel Jim Gorton. October 1, 2002.
(AP/Wide World Photos)

G
lobal Crossing Chairman Gary Winnick offered $25 million of his own money to cover losses in his employees’ 401(k) accounts, a pittance compared to their losses and his gains. October 1, 2002.
(AP/Wide World Photos)

F
rank Quattrone, technology banker extraordinaire, exiting Manhattan federal court. April 23, 2003. A jury found him guilty of obstruction of justice and he was sentenced to 18 months in prison. He is appealing.
(AP/Wide World Photos)

B
ernie Ebbers, handcuffed and escorted by federal agents, after being charged with securities fraud, conspiracy to commit securities fraud, and making false statements to the Securities and Exchange Commission. March 3, 2004.
(AP/Wide World Photos)

B
ernie Ebbers and his tearful wife, Kristie, leaving federal court after a jury found him guilty on all nine counts. He was later sentenced to 25 years in federal prison.
(New York Post/RexUSA)

“Let’s be real,” I interjected. “The only way to avoid this in the future is to stop giving him special information as it just enhances his market power. Right now that’s working against you and I’m powerless to help.”

“Dan,” Scott insisted, “I assure you that stuff is not going on anymore.” Not going on
anymore?

Well, if I’d ever needed any justification for all those sleepless nights, I now had it. It seemed Scott was admitting what I’d suspected for a long time: Jack was getting better information than the rest of us. In one sense, I felt vindicated. The conversation confirmed all of my worst suspicions about the Jack-WorldCom relationship.

On the other hand, I also felt sick. The way this business worked was beginning to disgust me. No matter how much analysis the rest of us did and no matter how much we knew about the telecom industry, we’d always know less about WorldCom than Jack Grubman. He not only knew more than the rest of us, but sometimes seemed to know more than the company itself.

“That’s good,” I said sarcastically, and Scott said he had to take another call. We signed off.

“What’s the matter with these guys?” Ido asked. “Why would they voluntarily play with the devil?”

“Get it right, Ido,” I said. “It’s the devil playing with the devil. I guess that’s why they get along so well.”

I hate what this job has become, I thought. Everything is rumor, leaks, and guidance. Is anyone doing primary research anymore? Am I? Not really. I’m too busy keeping up with all these whispers and denials, because that’s what moves stocks. I was spending most of my time trying to track down who said what to whom when I should have been out there talking to competitors, customers, and suppliers, kicking the tires of companies and figuring out what was really going on. This job was now less about analysis and more than ever about whom you knew. I was embarrassed, both for how my own work had become increasingly superficial and for the investment research profession overall. I wondered if I could make it through another three years.

My Mountaintop Message

A few weeks later, in early March 2000, the mouth of my dear old “friend” Joe Nacchio got him in trouble again—and forced me into another one of
those seat-of-the-pants decisions that I hated so much. I didn’t know it then, but it would turn out to be one of the last good calls of my career.

I was skiing at Vail’s new-terrain, just-opened Blue Sky Basin with Jeff Jacobs, my friend and stockbroker from Merrill, and his father, Howard. It was a warm, sunny day, and we had just finished an unbelievable run through deep powder and were on the chairlift when my cell phone rang. I wanted to ignore it and get back to enjoying the Colorado sun and powder, but finally I pulled the phone from my jacket and saw that it was Julia Belladonna, one of my young team members who had come over with me from Merrill and worked with me on the Baby Bells.

“Hi,” I said. “Just don’t tell me Bernie’s canceling [his commitment to give the keynote at my conference next week].” Julia, a serious, unflappable sort who had worked as a paralegal before deciding she wanted to break into equity research, was normally very calm, but there was a real edge to her voice. The cell signal was weak and it was hard to hear her, so I asked her to speak louder. Yelling, her words came through this time. “US West is getting hammered, Dan. All hell is breaking loose. The salespeople want you and want you now!”

“Oh, great,” I responded. “What’s going on?”

“There is some story flying around the Street,” she said, “saying Qwest has been approached by a foreign company and Qwest may break off its deal to acquire US West.”

The previous July, at the end of the bidding war between Global Crossing and Qwest for Frontier and US West, Qwest had agreed to buy US West, but the deal hadn’t yet been finalized. The speculation apparently stemmed from a
USA Today
story that morning, March 1, 2000, citing people close to both Deutsche Telekom and Qwest confirming that the two telecom giants were in negotiations.
²
No one knew for sure whether this meant that US West would be included in such a deal or not. Yet the rumor seemed to be that Qwest would abandon US West at the altar, preferring to sell itself to Deutsche Telekom for a big profit.