Confessions of a Wall Street Analyst Part 1

Confessions of a Wall Street a.n.a.lyst.

A True Story of Inside Information and Corruption in the Stock Market.

by DAN REINGOLD.

Prologue.

TUESDAY, MARCH 15, 2005 15, 2005.

IT WAS JUDGMENT DAY for Bernie Ebbers, but no one knew it yet. for Bernie Ebbers, but no one knew it yet.

As I walked into Courtroom 318 of the federal courthouse in Manhattan and took my usual seat in the gallery, it looked like just another long day of waiting. It was the eighth week of Bernie's criminal trial and the eighth day of the jury's deliberations. The stakes were huge: if convicted of all nine counts of conspiracy, securities fraud, and filing false financial statements, the 63-year-old former CEO of WorldCom would likely live out his final days, not on a yacht or on his vast ranch in Canada, but in a federal prison cell.

I stared at Bernie as he sat at the defendant's table, flanked protectively by his high-priced lawyers. Behind him sat his wife of six years, Kristie, and her 20-year-old daughter, Carly. Two of Bernie's own daughters, Joy and Faith, had sat through much of the vigil but had flown home the night before.

The events of the previous few years had been rough for the one-time billionaire. A slight slump had replaced his once-jaunty swagger; his hair and beard had gotten decidedly grayer; his paunch sagged. But oddly, Bernie didn't seem preoccupied by the fact that at that moment twelve random individuals were determining his fate. Seemingly absorbed in a novel, his lined face was totally expressionless. It was strange: I had known the man since 1993 and had clashed with him regularly for years, but after all this time, I still found him inscrutable.

The trial was the final act in a remarkable rags-to-riches-to-rags saga. Bernie Ebbers, a one-time milkman and high school basketball coach in rural Mississippi, had taken a tiny long distance company and built it into MCI WorldCom Inc., the second largest telecommunications company in the world behind AT&T. He had become a billionaire, a celebrity, the CEO atop the mountain, at a time when his industry and mine-telecom-was one of the s.e.xiest in the world.

But by mid-2002, his company had collapsed in a web of lies and deception. Over $180 billion in shareholder value had evaporated. Over 30,000 WorldCom employees and nearly 200,000 others at related companies had lost their jobs in the telecom bust that followed. And Bernie had gone from a hero to a villain, his reputation as a master of the deal replaced by that of the man who presided over the biggest fraud in history.

Although Bernie and I had never much liked each other, we'd struck up an odd camaraderie in the courtroom, where we'd make small talk or discuss the most recent testimony. Early on in the trial, I ran into Bernie in the men's room, of all places. "How are you holding up, Bernie?" I asked.

"Fine, Dan," he said, turning and looking me in the eye.

"Dan, I know one thing," he said, his face stoic, his voice even. "I just have to stand in front of my G.o.d, whenever that comes. I know I didn't do anything wrong."

We both walked over to the sink to wash our hands.

"Bernie, based on what I've heard in the opening arguments," I said, "I don't see evidence that you knew what Scott was doing." I was referring to Scott Sullivan, WorldCom's former CFO, who had already pleaded guilty to numerous criminal charges related to WorldCom's multibillion-dollar accounting fraud.

I was baiting him, of course, hoping he'd tell me something, anything about what had happened. I was as anxious to know the truth as anyone. The news of WorldCom's ma.s.sive accounting fraud had shocked me to the core. How could I have missed it?

My job as a research a.n.a.lyst on Wall Street had been to understand the numbers. Though I certainly hadn't believed everything Bernie had said over the years, I'd never had reason to question the authenticity of the financial information the company reported. Nor, unfortunately, had the other Wall Street a.n.a.lysts, the bankers, the lawyers, or even the auditors. Bernie's company had been faking its numbers to the tune of billions of dollars, and none of us had figured it out.

"Dan," Bernie said, "perhaps I should have should have known, but I didn't. It's just a shame, a d.a.m.n shame. This whole thing is so sad." known, but I didn't. It's just a shame, a d.a.m.n shame. This whole thing is so sad."

He was definitely right on both counts. He should have known. And it sure was sad. Of all the sad things that I had witnessed as the telecom bubble burst, the collapse of WorldCom was most decidedly the saddest, with so many people's livelihoods destroyed by this evil numbers game. I felt infuriated as I listened to him shirk off any responsibility for this horrible situation; no matter what the jury decided, all of this had happened on Bernie's watch and Bernie's watch alone. Although the evidence seemed circ.u.mstantial and uncorroborated, at the same time it seemed incomprehensible to me that he hadn't known something about the ma.s.sive deception.

You see, WorldCom was part of my legacy too. I was driven by both anger and an intense curiosity to understand what had really happened. I had been the lead telecommunications a.n.a.lyst for several of the world's largest and most powerful Wall Street investment banks. It had been my job to a.n.a.lyze the investment prospects of WorldCom and other telecom companies and recommend whether clients should buy, sell, or hold their shares. I took those responsibilities very seriously.

For many years, my research reports and recommendations influenced the way in which billions of dollars were invested in the stock market. My views were printed in leading newspapers and broadcast on CNBC and on teleconferences that were beamed to thousands of retail brokers, savvy professional money managers, and the adoring press. I had been at the top of my field, trading the top rankings with my archrival, Salomon Smith Barney's Jack Grubman, a man who had a radically different view of the role of the a.n.a.lyst from mine. But that didn't help either of us when it came to WorldCom's fraud. Jack had been the leading cheerleader for WorldCom's stock for nearly a decade, and I, too, had recommended its stock for three years, from late 1997 until mid-2000, when the company began to show signs of trouble.

Now those days were long gone. The only people whose opinions mattered were the twelve New Yorkers deliberating in the jury room, strangers who, before the trial, knew little or nothing about WorldCom, the telecommunications industry, Wall Street, or Bernie Ebbers. They had often looked bored and confused, probably wondering how they'd had the bad luck to get roped into this accounting mess instead of getting to weigh in on glamorous rapper Lil' Kim's perjury trial, which was going on at the same time in the same courthouse, one floor below.

One day I was eating lunch in the building's cafeteria when I looked up to see Bernie and his family setting their trays down near Lil' Kim and her entourage, each clueless as to the other's existence. Finally, Bernie's stepdaughter, Carly, realized who Lil' Kim was and struck up a conversation. It was both hilarious and sad to realize how much the rap star and the business star, inhabitants of such disparate worlds, suddenly had in common.

At about 12:20 PM on March 15, I was chatting with Bernie's wife and her daughter outside the courtroom when a reporter suddenly darted out and told us that the stenographer had just come in. That, I had learned, was a sure sign that something was about to happen. Perhaps it was as harmless as a note from the jury requesting doc.u.ments or asking for Domino's Pizza for lunch instead of that lousy cafeteria food. That one had gotten some laughs a few days back.

But today, the jury had discussed more weighty matters than the merits of pepperoni versus mushrooms. We all hustled back into the courtroom and took our seats. A few minutes later, the court clerk strode purposefully out of the chambers.

"We have a verdict," he announced.

A frisson of energy rippled through the room.

They had a verdict.

IN APRIL 2003, I quit Wall Street after 14 years as an a.n.a.lyst and more than two decades in the telecom industry. I'd experienced one of the most dramatic rides in financial history, having had the good fortune of arriving on Wall Street at the beginning of a historic bull market and the misfortune of leaving when it was in ruins. I'd witnessed-and been a part of-the transformation of telecom from a sclerotic, regulated backwater to a glamorous whirlwind of ma.s.sive M&A deals and Internet-crazed public stock offerings. I'd experienced firsthand the transformation of the stock a.n.a.lyst from a backroom number cruncher to a rainmaker whose recommendations were followed breathlessly and who often determined whether an investment bank won or lost multibillion-dollar deals. I'd lived the lush life, traveling on private planes around the globe, eating in the finest restaurants, and sitting in front row seats at World Series games, US Open tennis championships, and Madonna concerts. I'd even been an unwitting catalyst for a series of s.e.xually explicit e-mails that would rock Wall Street, bringing Jack Grubman to his knees and contributing to the unplanned retirement of his boss, Citigroup CEO Sandy Weill. 2003, I quit Wall Street after 14 years as an a.n.a.lyst and more than two decades in the telecom industry. I'd experienced one of the most dramatic rides in financial history, having had the good fortune of arriving on Wall Street at the beginning of a historic bull market and the misfortune of leaving when it was in ruins. I'd witnessed-and been a part of-the transformation of telecom from a sclerotic, regulated backwater to a glamorous whirlwind of ma.s.sive M&A deals and Internet-crazed public stock offerings. I'd experienced firsthand the transformation of the stock a.n.a.lyst from a backroom number cruncher to a rainmaker whose recommendations were followed breathlessly and who often determined whether an investment bank won or lost multibillion-dollar deals. I'd lived the lush life, traveling on private planes around the globe, eating in the finest restaurants, and sitting in front row seats at World Series games, US Open tennis championships, and Madonna concerts. I'd even been an unwitting catalyst for a series of s.e.xually explicit e-mails that would rock Wall Street, bringing Jack Grubman to his knees and contributing to the unplanned retirement of his boss, Citigroup CEO Sandy Weill.

But the flip side was a world where work never stopped, where I was literally on call at any time and any place. I was part of an industry and profession that was swallowed up in a devastating mix of fraud, unethical behavior, overoptimism, and financial mismanagement. The bursting of the telecom bubble cost investors far more money and jobs than the dot-com crash and most other market meltdowns in history. And WorldCom was only one ignominious part of this story.

By the time I left my last Wall Street firm, Credit Suisse First Boston (CSFB), I was burned out by the headlong pace and depressed by the beating my profession had taken. But I had also benefited immensely. I walked away with far more money than I had ever yearned for or deserved. In the two years since retiring from the Street, I did some teaching, took a few cla.s.ses, and spent lots of quality time with my wife, Paula, and our two daughters-things I had far too little time for when I worked on the Street. But I remained intensely frustrated by all the wrongs that had still not been righted. The way the telecom bubble and the rash of conflicted behavior by Wall Street a.n.a.lysts had been portrayed was simplistic and often wrong. The investigators had focused on some types of wrongdoing-fraud at WorldCom and dishonest research on the Street-but had ignored other equally egregious practices, such as the leaking of inside information, which were at the core of the Wall Street scandals of the 1980s but never really went away.

Many people were never called to account, and many practices apparently escaped the attention of New York's attorney general, Eliot Spitzer, and the Securities and Exchange Commission. No one ever explained what really went wrong, nor did anyone follow the chain of responsibility for these actions as high as it might go. Many of the worst transgressions that make our markets grossly unfair went unpunished and uncorrected.

Hence this book.

IT IS A BOOK that will take you into the inner sanctum of Wall Street, a book that I hope will open a door to a new world in the same way a new world opened up to me when I took my first job as a Wall Street a.n.a.lyst in 1989 and soon received the first of many cryptic calls: that will take you into the inner sanctum of Wall Street, a book that I hope will open a door to a new world in the same way a new world opened up to me when I took my first job as a Wall Street a.n.a.lyst in 1989 and soon received the first of many cryptic calls: "Come immediately to a meeting, Dan. Don't let anyone, not even your staff or your family, know where you're going."

At such meetings, it would become clear that a company was about to undertake a major move such as a merger, an acquisition, or a big financing with the help of my investment bank, and that the company wanted my advice. On Wall Street, this experience was called going "over the Wall," referring to the "Chinese Wall" that was supposed to keep confidential, inside information obtained by an investment banker from falling into the hands of someone who could use it for unfair gain. I went over the Wall many times in my career. And this book will bring you over the Wall, too-the wall that conceals and protects how Wall Street really really works. works.

As I write, the telecom and financial worlds are showing signs of life. A few stocks, such as Google, the Internet search engine, are defying gravity once again. Investment banks have restructured in an attempt to keep a.n.a.lysts from the types of temptations and conflicts of interest that brought their firms numerous lawsuits and billions in fines. Boards of directors have been reshuffled. Ethics policies have been implemented and laws changed. Some of the most lurid corporate scandals of the early twenty-first century, from Tyco and Adelphia to WorldCom and Enron, have finally reached all the way to the tops of those organizations, thanks in part to the zealous efforts of government prosecutors. And mega-billion-dollar mergers in the telecom industry once again headline the news.

It seems like a whole new world. And indeed, it is certainly true that the Street has changed in some ways, ways that make it a little less vulnerable to overt fraud. It is also true that some executives of some corrupt companies are finally being brought to account and that investment banks and the a.n.a.lysts who work for them are under much more scrutiny than ever before.

But let's not be fooled. There remain many conflicts, leaks, and abuses of the law-and of investors' trust-that have never been exposed. No one has fully explained why the remedies offered and prosecutions undertaken thus far will not solve the problems inherent on Wall Street. No one has fully explained how investors play on an unbalanced and unfair playing field, a field that individuals and even many professional investors have no business playing on at all. And no one has explained how crime paid-and paid big-for the majority of people who broke the rules.

Nor has anyone exposed the unfair, often illegal use of inside information. The misuse of inside information grew out of control during my years on the Street, but no one has successfully pursued its abuse, not even Eliot Spitzer, one of the most aggressive investigators of corporate wrongdoings in history.

Sometimes the beneficiaries were professional inst.i.tutional investors. Sometimes the benefits flowed to Wall Street a.n.a.lysts, who used inside information to parlay themselves into positions of power and influence in the stock market. At other times, it was corporate executives, whose advance knowledge of coming troubles let them cash out of their company's stock ahead of all other investors. This insider's game was never fair, not even for the professionals, who might have gained an edge in some situations but found themselves shut out in many others. Above all, it was-and remains-most unfair for the individual investor.

In the pages that follow, I'll share my front-row seat at one of the most dramatic-and ultimately tragic-periods in financial history. I will share details of life on Wall Street that few can risk disclosing for fear of implicating themselves. I'll explain what it was like to be at the epicenter of the most dynamic industry in a highflying stock market, sparring with fellow Wall Streeters Jack Grubman, Henry Blodget, and uberbanker Frank Quattrone; telecom CEOs like AT&T's Michael Armstrong, WorldCom's Ebbers, and Qwest's Joe Nacchio; and Street bosses such as Merrill Lynch's David Komansky, Morgan Stanley's John Mack, and CSFB's Brady Dougan.

I'll show a Wall Street that was a jungle of greed and ego, a place br.i.m.m.i.n.g with conflicts, and a place that was absurdly out of touch with the Main Street it claimed to serve. It was an environment in which pay levels spiraled out of control, where 30-year-olds earned seven figures, and where no one noticed an extra $1.5 million inadvertently inserted into my own employment contract. It was an environment in which an insider tip could yield billions of illicit stock market gains without anyone else knowing. It was an environment in which an obscure ruling by the Securities and Exchange Commission (the government agency responsible for the integrity of the financial markets) sparked what I believe was the biggest wave of Wall Street conflicts of interest ever. And it was an environment in which ethical standards had fallen so low that not only was it difficult to do the right thing but often it was difficult to even discern the line between right and wrong.

What you'll learn in these pages is sometimes ugly, but it is all true. While writing this book, I have had to relive many of the decisions, judgment calls, and ethical choices I made. Sometimes those memories have made me smile with pride; other times, I've cringed with embarra.s.sment. Some of the stories are outrageous, others hilarious, and many are simply absurd. Such was life inside the telecom bubble.

LOOKING AT BERNIE'S BACK, I wondered what was about to happen to him. I wondered, too, about Jack Grubman. Jack was my fiercest rival and the a.n.a.lyst who parlayed his advocacy of WorldCom and his close a.s.sociation with Bernie Ebbers into a position of power that made him the most influential a.n.a.lyst on Wall Street for much of the 1990s. Jack and I were brutal compet.i.tors, so obviously I can't be completely objective, but I do believe that he personified much of what went wrong at the intersection of Wall Street and Main Street. Now he, too, was gone, having resigned under a cloud of scandal and having been banned from Wall Street, but without ever being charged with any crime or brought to trial. I wondered what was about to happen to him. I wondered, too, about Jack Grubman. Jack was my fiercest rival and the a.n.a.lyst who parlayed his advocacy of WorldCom and his close a.s.sociation with Bernie Ebbers into a position of power that made him the most influential a.n.a.lyst on Wall Street for much of the 1990s. Jack and I were brutal compet.i.tors, so obviously I can't be completely objective, but I do believe that he personified much of what went wrong at the intersection of Wall Street and Main Street. Now he, too, was gone, having resigned under a cloud of scandal and having been banned from Wall Street, but without ever being charged with any crime or brought to trial.

With the verdict now imminent, reporters scurried across the room to their preferred positions, some near the jury, some sitting behind Bernie and his defense team, and some poised to run outside to the TV cameras and trumpet the news to the world. The sketch artists opened their easels and sat poised to capture the moment in its most lurid details.

I glanced over at Kristie Ebbers, who sat with her arms around her daughter Carly. Bernie was now standing up straight, facing the jury box, praying to his G.o.d, I supposed. His face was totally impa.s.sive. You'd never have known he was waiting to find out whether he'd be walking out of this courtroom a free man or spending the next few decades in prison.

At 12:30 PM, Judge Barbara Jones, an even-keeled former federal prosecutor, came out of her chambers. The jury filed in slowly. I scrutinized their faces, looking for clues. Not one of them looked at Bernie.

"Have you reached a verdict?" Judge Jones asked the foreperson, a serious, middle-aged woman named Theodora Evans.

"Yes, we have, Your Honor."

"May I see it, please?" The clerk brought the envelope to the judge, who opened it, pulled out two pages, and read them to herself for a seemingly interminable sixty seconds. Judge Jones gave it back to the clerk.

"Ms. Evans, you are the foreperson of the jury," Judge Jones said. "Would you please answer the following questions for the court: How does the jury find Mr. Ebbers on count number one, conspiracy?"

"Guilty," Ms. Evans said, her voice low and strong.

The courtroom went absolutely, totally silent. I looked at Bernie and then at Kristie. Both were staring into s.p.a.ce, their faces masks, motionless and emotionless.

"How does the jury find Mr. Ebbers on count number two, securities fraud?"

"Guilty, Your Honor," Ms. Evans said.

"Count number three?"

"Guilty, Your Honor."

Tears began to spill out of Kristie's eyes. She didn't have any tissues. Small rivulets streamed down her face as she stared at the back of Bernie's head. Carly put her arms around her mom's waist. Bernie continued to stand up straight, his face blank. I couldn't believe his legs were still holding him up. His lawyer, the folksy, ultraconfident Reid Weingarten, sat next to him in shock.

Bernie was found guilty on all nine charges.

As the judge and jury filed out of the courtroom, some people looked vindicated, others stunned. Bernie picked up his coat and embraced Kristie and Carly. As the three of them pa.s.sed me in the aisle, I tried to empathize, but I kept recalling that his company's fraud had helped to bring down my industry and ruin the livelihoods and retirement dreams of hundreds of thousands of people. Though he seemed to be unaware of what was going on around him, he turned and shook my hand.

As the Ebbers family exited the courthouse and slowly trudged the half block up to Centre Street to catch a cab, crowds of cameramen and reporters hounded them. Bernie Ebbers, a man who once had private jets, drivers, and handlers, was exposed to the jeers of pa.s.sersby who had heard the news.

"You should fry," one yelled.

"Do you know how many lives you destroyed?" bellowed another.

"You got what you deserved," a third muttered to himself.

The king of the shining new world of telecommunications had a new ident.i.ty: the king of white-collar crime.

But while the world finally saw justice served in the story of WorldCom, the jury is still out, in my view, on the telecommunications industry, which burned so brightly and sucked in so many people before it turned into the deepest of black holes. Moreover, the jury is also still out on the responsibility of the Wall Streeters who aided and abetted the rise of these companies and then simply got out of the way when they collapsed, at most paying only a few modest fines. And it's still out on the insider game that I was a key part of, a game that the average investor-and even many of the professionals-can never win.

I'm sure you will arrive at your own verdict after reading the pages that follow.

1.THE PLUNGE.

19891991

Ed picked me up at my house in a taxi. My home, at the time, was nothing super fancy, but Paula and I had put a lot of sweat into it and were quite proud of it.

Ed took one look at the house and almost started laughing. "You ought to come to Wall Street and hit the big time," he said.

JULY 14, 1989 14, 1989.

"This Is the Street Where They Fool People."

THAT'S WHAT I WAS THINKING as I stepped off the early morning express train from Scarsdale and stood on Madison Avenue, blinking nervously in the bright sunlight. As I gazed up at the rows of tall buildings and tried to avoid colliding with the natives, I felt the tiniest sense of relief. as I stepped off the early morning express train from Scarsdale and stood on Madison Avenue, blinking nervously in the bright sunlight. As I gazed up at the rows of tall buildings and tried to avoid colliding with the natives, I felt the tiniest sense of relief.

At least my job was on Wall Street. Madison Avenue, by contrast, was the center of the advertising world, the place where smart and manipulative companies burned loads of cash and creative energy to convince us that we needed to wash our hands with Dial, brush our teeth with Colgate, and wipe our derrieres with Charmin. At least I was going to be an a.n.a.lyst whose job it was to evaluate companies on their merits, not someone whose raison d'etre was to seduce America's soap-opera watchers with meaningless slogans and exaggerated promises.

My new job in equity research, I believed, had nothing to do with manipulation and everything to do with balanced, rational thinking. I had made the leap to Wall Street in part because of the money, but also because being an a.n.a.lyst seemed like the perfect job for a serious guy like me who liked to reason his way through life. Sure, emotion and hype sneaked into my line of work occasionally, but in the end, the stock market was rational, a.n.a.lytical, cool. Fooling people wasn't part of this this equation. equation.

Or so I thought. In retrospect my naivete sounds charming or-let's not be charitable-silly. Of course Of course Wall Street was as much about fooling people as Madison Avenue was, at least if you were one of the corporate executives trying to convince investors-and a.n.a.lysts-that your company's shares would shoot to the moon. But my job, I hastened to tell myself, was all about shooting straight. I had been in a sales role before, and I'd never liked it. Now I'd have a chance to focus entirely on the facts. Wall Street was as much about fooling people as Madison Avenue was, at least if you were one of the corporate executives trying to convince investors-and a.n.a.lysts-that your company's shares would shoot to the moon. But my job, I hastened to tell myself, was all about shooting straight. I had been in a sales role before, and I'd never liked it. Now I'd have a chance to focus entirely on the facts.

I grabbed on to that belief as if it were a life preserver and clutched it as I walked up Madison, then west on Forty-eighth Street and north on Sixth Avenue until I reached the headquarters of Morgan Stanley at Fiftieth and Sixth. I was 36 years old, it was my first day on Wall Street, and I was scared out of my mind.

Not that I had fallen off the turnip truck or anything. I had moved here from Washington, D.C., where I had been director of business a.n.a.lysis at MCI, the brash upstart that was shaking up the telecommunications business. I had interacted with Wall Street and its a.n.a.lysts and bankers for the past two years, trying to make them see my company as positively as I did. What I loved the most was the intellectual sparring as we debated the future of MCI and the telecom industry. It had been a great gig.

But this was the big time. I had been recruited by one of the premier investment banks, a place better suited to Brooks Brothersclad Greenwich bluebloods than a middle-cla.s.s public school guy from Buffalo, New York. I was going to be one of a select group of some 35 a.n.a.lysts at Morgan Stanley whose job it was to recommend stocks-and, I had been told, move the financial markets. The prestige and power of my new job filled me with pride. But the responsibility terrified and humbled me. All of a sudden I was in the major leagues, and I'd never even played Cla.s.s A ball. What was I doing in the middle of this?

Already, I'd ventured pretty far from my beginnings as the son of a sc.r.a.p-metal dealer with a high school education. I'd been a political science major and math minor at the State University of New York at Albany, where I'd met my wife-to-be, Paula Zimmer, during a Wiffle ball game on the first day of our second year. She studied art history and then went back to school to become a pediatric-intensive-care nurse. And I'd gone on to become a starry-eyed graduate student of Middle East politics at the University of Chicago and Princeton University, certain I wanted to devote my life to bringing peace to that powder keg of a region.

I ended up at the LBJ School of Public Affairs at the University of Texas, earning a master's degree in 1979. I was hoping for an a.s.signment that involved foreign policy but instead accepted a $24,000 offer from Coopers & Lybrand, one of the world's largest accounting and consulting firms, as an economic consultant in its Washington, D.C., office. For a few years, I was really happy at Coopers. The job appealed to my inner wonk, and I worked my way up the food chain. But once I was promoted to manager, my job became more and more about selling new consulting services to clients. The whole selling thing turned me off. I didn't want my life to be defined by the spin and hype of selling. Working inside inside a growing company began to sound a lot more interesting. a growing company began to sound a lot more interesting.

From Consulting to Communications: MCI It just so happened that the Coopers's D.C. office building backed up against the new offices of MCI, an upstart telecommunications company that had been in business since 1968. MCI had emerged as a young, exciting David to AT&T, the ultimate corporate Goliath, with a more responsive, entrepreneurial culture. Its founder, Bill McGowan, had found a way to compete against AT&T in the long distance market even before the November 1982 court order that would break up the monopoly Bell system into AT&T and seven companies that became known as the Baby Bells. MCI had grown wildly in the early 1980s, quadrupling its sales to $400 million between 1979 and 1983.

I knew a few former colleagues from Coopers who had gone over to MCI, and decided it sounded like a great opportunity. MCI made me an offer to work in its finance department, though it would mean a 10 percent pay cut from my current salary of $38,000 to $34,000 and the end of my rise up the Coopers & Lybrand partnership ladder. I talked it over with Paula, and although it was going to be tough for a while, she agreed that the potential to work at a fast-growing, dynamic company was worth giving up some salary in the short-term.

Most of all, I wanted out of anything to do with sales and marketing. I was a cerebral type who liked reasoning through complex issues rather than trying to turn everything into a slogan or sales pitch. It would become a familiar refrain in my career, and an ironic one too. Every time I tried to escape the sales aspect of a job, I made a move that brought me closer to that world.

But I didn't know any of that then. I was 30, with a wife, a two-year-old daughter, and another baby on the way-no longer an idealist seeking world peace, but no cynical sellout either. So I started at MCI in 1983 as a capital-budget a.n.a.lyst, which essentially meant that I reviewed all the requests for money from around the company and recommended approval or rejection. It was a cla.s.sic middle management job, but it was exciting work in a company like MCI. Within four years, I had become the senior manager of budgeting and planning, doing nuts-and-bolts financial stuff that was right up my alley. And then, in 1987, I got a call from Bill Conway, MCI's wunderkind 36-year-old chief financial officer. He wondered whether I'd be interested in a job in the investor relations department as the liaison between MCI and the Wall Street a.n.a.lysts who now covered us.

Every time a new industry came along, Wall Street staffed up with a.n.a.lysts, traders, and bankers to cover it. And while telecommunications wasn't new, the number of publicly traded telecom stocks was about to triple. In 1984, what was just one company-AT&T, or "Ma Bell"-became eight when the Bell system was broken up in an ant.i.trust settlement with the U.S. Department of Justice. It was a decision that would usher in a new world of compet.i.tion, major technological advancements, and billions and billions of dollars in new investment.

There were now eleven major telecom companies-AT&T, the seven Baby Bells, GTE, Sprint, and MCI. Former AT&T shareholders were given shares in each of the Baby Bells and, of course, in the new AT&T, which now provided long distance service and manufactured telecom equipment. These companies, now publicly traded, were suddenly vulnerable to the vicissitudes of the stock market, and Wall Street desperately needed people who could help investors figure it all out. So in the early 1980s the Street went on a hiring binge, recruiting practically everyone it could find with experience in both financial a.n.a.lysis and the telecom sector.

These a.n.a.lysts were a small but elite group of people who researched companies' publicly traded stocks and made recommendations to investors on whether or not to buy them. They studied companies in their area of expertise by doing everything from a.n.a.lyzing the financial trends in an industry to interviewing the top executives to gauging the impact of upcoming regulatory changes.

There were two kinds of a.n.a.lysts, each with different responsibilities. The first group, some 500 strong in total by the late 1980s, worked for investment banks like Morgan Stanley or Goldman Sachs. They published their research in reports that were then "sold" to outside investors from large pension funds, mutual funds, and other large inst.i.tutions, which is why they were known as "sell-side" a.n.a.lysts. In practice, these reports were not really sold; they were given to the inst.i.tutional investors in exchange for the fund managers buying or selling stocks through the firms with the most helpful research. At some banks, brokers in the "retail" arm of the business would also provide this research to individual investors. The sell-sider had to walk an odd sort of tightrope, providing research that was supposed to be completely independent of any banking business his employer might do with the companies the a.n.a.lysts covered.