Confessions of a Wall Street Analyst Part 16

Those poor paralegals. They had stayed up all night going through my e-mails and finally thought they had caught me! David and I had a good laugh at a time when not many people were laughing about anything. That was the end of the exchange and the last thing the lawyers asked me about. I never heard from any of the investigators on the a.n.a.lyst independence issue and still haven't to this day.

s.e.x, Lies, and Videotape The next round of congressional hearings began on October 1, 2002. Joe Nacchio and Gary Winnick were summoned to testify. Also testifying were several Qwest and Global Crossing employees who had lost their life savings investing in their company's stock. "I'd like to congratulate Joe Nacchio on taking-having taken such good care of his children," said Paula Smith, a woman who had worked for US West, the predecessor of Qwest, since 1980 and who had seen the $240,000 she'd saved for her daughters' education wiped out. "I really wonder if he would be willing to help me educate my children."

Gary Winnick, who looked bloated, either from too many cookies or with misplaced pride, was next up. The committee members excoriated him for his stock sales on May 23, 2001, not long before the meeting I hosted with Global Crossing that called into question the sustainability of the company's revenue growth. He denied having any inside negative information and then, in a masterful public relations move, announced that he would contribute $25 million to restore some of the 401(k) losses suffered by Global employees.

The congressmen, who moments ago had been thirsting for Gary Winnick's blood, went silent. How could they beat up a guy who just gave $25 million of his own money to their poor const.i.tuents? Never mind that those Frontier and Global Crossing employees had lost hundreds of millions of dollars and that $25 million was peanuts for him, only 3.5 percent of the over $700 million of Global Crossing shares he had sold before the stock crashed. When Joe Nacchio, who had himself cashed out of $216 million in salary, bonus, Qwest stock, and options between 1999 and 2001,15 was later asked whether he would do the same, he dodged the question. Qwest, he reminded everyone, was not bankrupt-though its stock was now selling for less than $2 per share. was later asked whether he would do the same, he dodged the question. Qwest, he reminded everyone, was not bankrupt-though its stock was now selling for less than $2 per share.

Watching the spectacle of these hearings made me more convinced than ever that it was time for me to phase out. After Ehud left, it hadn't been clear who should succeed me. Though Ido and Julia were well qualified and perfectly positioned to do so, there was concern from the top bra.s.s that they didn't have enough experience yet. So the decision was made to ask Lara Warner, CSFB's cable TV a.n.a.lyst, who had been Blake ("Bloodbath") Bath's a.s.sistant at Lehman Brothers several years back, to become CSFB's senior U.S. telecom a.n.a.lyst. I thought it was a good idea. Lara was already at CSFB, and she had worked at AT&T and then at Lehman covering telecom, so she had a lot of experience.

As of January 16, 2003, I would take on an advisory role as the firm's global telecom strategist. My new job would be to recommend to CSFB's clients a global portfolio of telecom stocks, telling investors how much of their portfolios should be invested in telecom versus other sectors, and which parts of the world and specific companies looked most attractive for investment. It was a big picture view compared to the range I'd had before. It meant quarterly deadlines instead of daily crises and big-picture thinking instead of detailed company modeling.

I should have asked for this a long time ago, I thought to myself, as I started the transition process. I was burnt-out, exhausted, and depressed about the current state of affairs. I'd been both very right and very wrong in my career, but my industry was in a shambles, thanks to a potent mix of overcapacity, underwhelming demand, and good old-fashioned fraud.

I had done very little marketing that year, as the events of September 11 had sapped my will to globe-trot in a frenetic search for votes. For the first time, I didn't really care whether I made number one on the I.I. I.I. list (I made number two in 2002, behind Morgan Stanley's Simon Flannery, the a.n.a.lyst with the prescient negative call on Qwest). My new strategist role didn't require me to be in the office that much. It was weird. I felt guilty, as if I were working half-time, even though I was putting in 4045 hours per week. Effectively, I was working only 60 percent as much as I had for so many years. I even started taking a film cla.s.s, seeking to catch up on some of the decades of culture I'd missed. list (I made number two in 2002, behind Morgan Stanley's Simon Flannery, the a.n.a.lyst with the prescient negative call on Qwest). My new strategist role didn't require me to be in the office that much. It was weird. I felt guilty, as if I were working half-time, even though I was putting in 4045 hours per week. Effectively, I was working only 60 percent as much as I had for so many years. I even started taking a film cla.s.s, seeking to catch up on some of the decades of culture I'd missed.

But just as I began to wind down, the case against Jack began to ramp up in a very serious way. Spitzer's team had subpoenaed virtually all of Jack's e-mails over the past several years in search of something d.a.m.ning. And in the fall of 2002, they found what they'd been looking for and a whole lot more, mostly relating to Jack's upgrade of AT&T shares back in November 1999. What I had believed was a straightforward quid pro quo that traded positive research for banking in order to help win a piece of the AT&T Wireless IPO deal was actually much weirder, and a whole lot more sordid, than that.

It was a tale that had everything from scheming CEOs to kids to s.e.x (or virtual s.e.x, at least). All tied up in Jack's upgrade, Spitzer would allege, was Citigroup CEO and Jack's boss Sandy Weill's desire to rid himself of his co-CEO, John Reed; AT&T boss Michael Armstrong's desire to make Jack a bull on his stock; and-in the piece de resistance-Jack's desire to get his boy and girl twins into one of the most exclusive preschools in Manhattan, the 92nd Street Y. Even I played an unwitting cameo role in the saga, I would later learn.

In November of 2002, The Wall Street Journal The Wall Street Journal and and The New York Times The New York Times ran a few blockbuster stories quoting from some e-mails that Jack had sent to "a friend" in early 2001 and that had been leaked to the press, presumably by Spitzer's investigators or some deep throat at Citigroup. ran a few blockbuster stories quoting from some e-mails that Jack had sent to "a friend" in early 2001 and that had been leaked to the press, presumably by Spitzer's investigators or some deep throat at Citigroup.16 That "friend" was actually a buy-side a.n.a.lyst named Carol Cutler, and I knew her fairly well, though not the same way Jack did, I soon found out. That "friend" was actually a buy-side a.n.a.lyst named Carol Cutler, and I knew her fairly well, though not the same way Jack did, I soon found out.

Carol Cutler was a New York-based telecom a.n.a.lyst for the government of Singapore's ma.s.sive investment fund, a major client of both Jack's and mine. A 40ish, artsy type with long red hair, she and I had had several run-ins, the most unpleasant of which occurred in early 2000, when Ehud and I lowered the forecast and target price for Williams Communications, a long distance startup. Well, Carol must have been loaded up with Williams shares. Just a few hours after our report was published, she called Ehud, who had written it, and left him a scathing voice mail telling him that our valuation methodology was horribly flawed.

"I know [this] methodology better than anyone," Carol hissed. "You guys made huge mistakes in your report. Your target price should be going up, not down." Ehud forwarded the message to me. I was astonished. Though I would never say "better than anyone," Ehud and I did know how to do our jobs. I didn't think our methods or a.s.sumptions were off base. They certainly weren't deserving of such scathing remarks. It was pretty unusual for a client to be so angry about a fairly uncontroversial report like this one.

I didn't figure out what her problem was-not until late 2002, that is, when I read Charles Gasparino's Journal Journal story detailing some of the findings of Spitzer's investigation of Jack. It said, among many other things, that Carol and Jack had been having a steamy e-mail affair of sorts, with lots of digital fantasizing. story detailing some of the findings of Spitzer's investigation of Jack. It said, among many other things, that Carol and Jack had been having a steamy e-mail affair of sorts, with lots of digital fantasizing.17 Perhaps Jack's disdain for me had rubbed off on his virtual paramour. Perhaps Jack's disdain for me had rubbed off on his virtual paramour.

The Journal Journal's story also said that those e-mails contained a motive for Jack's upgrade of AT&T. The truly crazy thing was that the e-mail conversation that ultimately cost Jack his reputation, $15 million in fines, and his job began with s.e.xually-tinged insults about-bizarrely-me! As I later learned from reporter Gasparino, who was working on a book about Jack, Mary Meeker and Henry Blodget, Carol and Jack had a special nickname for me: DW, which alternately stood for either "dimwit" or "d.i.c.kless Wonder." Some choice!

One day in early 2001, I guess to get on Jack's good side, Carol wrote Jack the following e-mail: "DW has a big fantasy about you. He wants to give you a b.l.o.w.j.o.b. Can you believe that! He's heard your reputation for being a Svengali so now he has this fantasy that if he drinks from the well then maybe he will finally understand telecom, what drives it and how it works...."18 Yikes.

I guess what Carol was doing was playing to Jack's ego by ridiculing me. I knew what I thought of Jack and was pretty sure I knew what he thought of me, but this was not just compet.i.tive fervor. It was obsession tinged with perversion. Unbeknownst to me, I was part of a virtual menage a trois. I was repulsed.

And that wasn't all. On January 13, 2001, Carol used me to push Jack's b.u.t.tons again.

"Do you think DW could do himself, much less anyone else?" wrote Jack.

"No," Carol replied. He's "...delusional and desperate to learn anything. That's why he wants to be in the closet to watch the great one...maybe we should hook him up with fellow delusionist Armstrong," she wrote. "Now that's a perfect match made in h.e.l.l."

As disgusted as I was to have been referenced in this juvenile exchange, I was ultimately glad that it at least served some purpose. Apparently, Carol's talk of me got Jack just riled up enough to expose some of his motivations for upgrading AT&T's stock from Neutral to Buy back in late 1999, just before AT&T selected underwriters for the IPO of AT&T Wireless. "He's already been done by Armstrong just doesn't know it," Jack responded, referring to me and my ill-timed upgrade of AT&T.

And then Jack laid out in living color his twisted justification for his AT&T upgrade 14 months earlier, apparently trying to dispel the notion that he had done it for something as pedestrian as $63 million in IPO underwriting fees. "You know, everybody thinks I upgraded [AT&T] to get the lead for [the AT&T wireless IPO in 2000]," he wrote. "Nope. I used Sandy to get my kids in 92nd St Y preschool (which is harder than Harvard) and Sandy needed Armstrong's vote on our board to nuke Reed in showdown. Once coast clear for both of us (i.e., Sandy clear victor and kids confirmed) I went back to my normal negative self on T [AT&T's ticker symbol]. Armstrong never knew that we both (Sandy and I) played him like a fiddle."19 Jack later recanted his e-mails, saying that he had essentially made up all of that stuff to appear more important in Carol's eyes. But Eliot Spitzer's team now had ammo, and they dug into the corners of upper-crust Manhattan to decipher Jack's note. Here's what they found, according to the complaint later filed by the SEC.

It turned out that Jack's negative comments on AT&T for the years prior to his upgrade had really angered Mike Armstrong, who mentioned it on several occasions to Sandy Weill, the complaint claimed. In a textbook case of interlocking directorships, Mike was on Citigroup's board, and Sandy was on AT&T's board. Although a.n.a.lysts were supposed to have their own opinions, Mike didn't see anything wrong with trying to use his persuasive powers to get Jack to think more positively about the stock. Jack had a lowly Neutral rating on the company at the time and regularly criticized the company to anyone who would listen.

According to the SEC complaint, AT&T management complained to Sandy that Jack hadn't called AT&T one of the "important telecommunications companies of the future" at a 1998 trade show. Sandy told some senior Salomon Smith Barney bankers, who told Jack. Jack, who had once worked at AT&T, then wrote a letter of apology to Sandy, dated October 9, 1998, which mentioned that he would also apologize to AT&T management when appropriate. "I want to make it perfectly clear," he wrote to Weill, "that the last thing I want to do is embarra.s.s the firm or myself or for that matter have AT&T put in an awkward position in dealing with Salomon Smith Barney."20 Sometime around the beginning of 1999, Sandy asked Jack to take a "fresh look" at AT&T.21 According to the SEC, Jack agreed to do so and sent a long questionnaire to the company, an unusual but legitimate approach when considering initiating coverage, changing an opinion, or simply writing a new report. Eventually, the company responded. Sandy then set up a meeting at AT&T for Jack with Mike and other top AT&T executives on August 5,1999. Just to put this in perspective, never in my 14 years on Wall Street did any senior executive of my firm, much less the CEO, get personally involved in the research process or arrange a meeting for me. According to the SEC, Jack agreed to do so and sent a long questionnaire to the company, an unusual but legitimate approach when considering initiating coverage, changing an opinion, or simply writing a new report. Eventually, the company responded. Sandy then set up a meeting at AT&T for Jack with Mike and other top AT&T executives on August 5,1999. Just to put this in perspective, never in my 14 years on Wall Street did any senior executive of my firm, much less the CEO, get personally involved in the research process or arrange a meeting for me.

Jack wrote Mike a follow-up letter two weeks later, asking for the company to open its kimono a bit more and hinting at the possible outcome. "When my a.n.a.lysis is complete and if the results are in line with what you and I are both antic.i.p.ating," he wrote, "once I'm on board there will be no better supporter than I.... As I indicated to you at our meeting, I would welcome the role of being a 'kitchen cabinet' member to you."22 He sent copies of the letter to Sandy, the head of SSB investment banking, and the head banker covering AT&T, telegraphing where he was going. He sent copies of the letter to Sandy, the head of SSB investment banking, and the head banker covering AT&T, telegraphing where he was going.

So Jack's "fresh look" was well underway by the time AT&T's board of directors approved the idea of an IPO for its wireless business at a meeting in October 1999-a decision in which Sandy, as a board member, partic.i.p.ated. According to the SEC's complaint, Sandy and Jack then discussed the status of Jack's a.n.a.lysis.

According to the investigators, Sandy was pressuring Jack for a better rating on AT&T's shares. But Jack allegedly wanted something out of it too. He was just then in the process of trying to get his twins admitted to one of the most exclusive preschools in Manhattan, the 92nd Street Y, and he wondered if Sandy could help him out.

On November 5, just over three weeks before Jack's upgrade, he sent a memo to Sandy Weill that was later released as part of Spitzer's evidence. Its t.i.tle: "AT&T and 92nd Street Y."23 Never one for subtleties, that Jack. After talking about his "good meeting" with Mike Armstrong, and discussing some more upcoming ones, he changed subjects. Never one for subtleties, that Jack. After talking about his "good meeting" with Mike Armstrong, and discussing some more upcoming ones, he changed subjects.

"Given that it's statistically easier to get into the Harvard Freshman Cla.s.s than it is to get into pre-school at the 92nd Street Y (by the way, this is a correct statement), it comes down to 'who you know,' he wrote. "Attached is the list of the Board of Directors of the 92nd Street Y....If you feel comfortable...I would greatly appreciate it if you could ask them to use any influence they feel comfortable in using to help us as well.... Anyway, anything you could do Sandy would be greatly appreciated. As I mentioned, I will keep you posted on the progress with AT&T which I think is going well."

Jack met with AT&T executives a few more times and on November 29, 1999, to the surprise of everyone, including me, upgraded AT&T from a Neutral, or "3," rating to SSB's top rating, Buy, or "1." In an e-mail, Jack pushed SSB's publications department to hurry so his report could be "distributed in time to meet Sandy Weill's deadline (before the AT&T board meeting)."24 His 36-page report, which came out the next day, attributed the upgrade to his new fondness for AT&T's cable telephone plans, a complete reversal of his prior position. In a fabulous coincidence, in mid-December of 1999, Sandy called a member of the 92nd Street Y board and asked for help getting Jack's twins into the school, saying he would be "very appreciative." Apparently, in Manhattan's high social circles, "very appreciative" is code for "very generous." His 36-page report, which came out the next day, attributed the upgrade to his new fondness for AT&T's cable telephone plans, a complete reversal of his prior position. In a fabulous coincidence, in mid-December of 1999, Sandy called a member of the 92nd Street Y board and asked for help getting Jack's twins into the school, saying he would be "very appreciative." Apparently, in Manhattan's high social circles, "very appreciative" is code for "very generous."25 A few months later, in March 2000, the kids got in. According to the complaint, the board member called Sandy back and then suggested a donation. It was approved in July, not to be made by Sandy personally but by Citigroup, for $1 million.

The arrangement paid off. That $1 million tax-deductible donation was a small price to pay in another way too. When AT&T selected SSB as one of the underwriters for the wireless IPO in early 2000-the one I was sure CSFB would win, the one that prompted my outburst to CFO Chuck Noski-SSB and its parent, Citigroup, collected a $63 million fee. In making its decision, AT&T a.s.sessed the views of the a.n.a.lysts covering its stock-much as Level 3 had done with its a.n.a.lyst scorecard. Jack, who had been on the company's bad side, suddenly received one of the highest possible scores. And in February of 2000, John Reed, Sandy's co-CEO at Citigroup, resigned, although every major newspaper reported that he had been forced out by Sandy and the board. That $1 million looked like a pretty darn good investment.

Jack, his work done, was no longer afraid to stand up to Sandy. He was the "Power Broker," after all. Three weeks after the AT&T Wireless IPO was completed, he allegedly began to criticize AT&T again in conversations with clients, although he didn't tell SSB's retail brokers nor did he lower his Buy rating on AT&T shares. A few weeks later, AT&T investor relations executive, Connie Weaver, wrote in an internal e-mail to Mike Armstrong and some other AT&T executives that inst.i.tutional money managers were viewing Jack's banter as a "virtual downgrade."26 Finally, in October 2000, he made it official. He downgraded AT&T shares twice, first from Buy, or "1," to "Outperform," or "2," and then, later in the month, down to Neutral, or "3," making a complete round-trip in less than one year. The irony, of course, was that Jack would have been right about AT&T if he had simply ignored Sandy's request for a fresh look and pursued other preschool options for his children. As it turned out, his twins attended the 92nd Street Y preschool but were not accepted into any of the private elementary schools Jack and his wife had wanted. Today, the twins attend a New York City public elementary school on the Upper East Side of Manhattan.

Both Jack and Sandy Weill denied Spitzer's allegations. Weill called the 92nd Street Y donation simply a gesture he would make for any valued Citigroup employee. Weill did admit to asking Jack to take a "fresh look" at the stock, but he said that's where it ended.27 And Jack, under questioning by Spitzer's folks, said he wrote that incriminating e-mail to Carol Cutler because he wanted to "impress a friend." And Jack, under questioning by Spitzer's folks, said he wrote that incriminating e-mail to Carol Cutler because he wanted to "impress a friend."

It was clear that Carol was duly impressed by Jack already, so much so that she was offering to perform various s.e.xual favors for him, according to multiple e-mails quoted in Gasparino's Blood on the Street, Blood on the Street,28 and even trying to convince him to leave his wife, according to one account. So one of Spitzer's investigators asked him, "Why would you need to impress someone you already won over?" and even trying to convince him to leave his wife, according to one account. So one of Spitzer's investigators asked him, "Why would you need to impress someone you already won over?"29 It was a good question, a question that could be asked of a lot of Jack's actions over the past decade or so. It was a good question, a question that could be asked of a lot of Jack's actions over the past decade or so.

So Long to the Street By the end of November 2002, most of this information had been vetted and aired in the press, thanks to a series of leaks. Yet the material was so salacious that even the investigators were reluctant to discuss it in detail. Although neither the Journal Journal nor the nor the Times Times would print the t.i.tillating parts of the e-mails, the rumors about them had certainly hit the Street. would print the t.i.tillating parts of the e-mails, the rumors about them had certainly hit the Street.

The New York Daily News, Daily News, however, couldn't resist making one reference. "Grubman, who is married and was then a $20 million-a-year a.n.a.lyst for Citigroup, was boasting about how he helped Sandy Weill become CEO of the world's biggest financial company when the talk moved from surging stocks to oral s.e.x. The money manager claimed to be an expert-and Grubman was intrigued," the story reported. however, couldn't resist making one reference. "Grubman, who is married and was then a $20 million-a-year a.n.a.lyst for Citigroup, was boasting about how he helped Sandy Weill become CEO of the world's biggest financial company when the talk moved from surging stocks to oral s.e.x. The money manager claimed to be an expert-and Grubman was intrigued," the story reported.30 But that wasn't all: Spitzer's team had by this point found e-mails from Jack, like Henry Blodget's, in which he indicated he did not believe his own published Buy ratings on a variety of startup local phone companies for which SSB had done banking business. Although some called Spitzer's moves a witch hunt, I thought he was zeroing in on the right people. Perhaps the Street might start to clean up its act. But that wasn't all: Spitzer's team had by this point found e-mails from Jack, like Henry Blodget's, in which he indicated he did not believe his own published Buy ratings on a variety of startup local phone companies for which SSB had done banking business. Although some called Spitzer's moves a witch hunt, I thought he was zeroing in on the right people. Perhaps the Street might start to clean up its act.

On December 20, 2002, Spitzer announced, with great fanfare, the preliminary outlines of a settlement with 10 investment banks, one that had involved an enormous amount of behind-the-scenes arm-twisting and poker playing. Every possible regulator managed to attach its name to the doc.u.ment, including the New York State Attorney General's Office, the NASD, the SEC, the NYSE, and various state agencies. Everyone wanted to be able to claim some form of victory, late as it was.

The banks agreed to pay a combined fine of $1.4 billion, with greater fines paid by those banks with greater alleged research fraud and conflicts of interest. Paying the largest fine, $400 million, was Citigroup's Salomon Smith Barney. Of that, $300 million would go to investor rest.i.tution, $75 million toward funding independent research, and another $25 million to investor education. CSFB and Merrill were fined $200 million each. And all 10 banks agreed to the following additional terms: -A severing of direct and explicit links between research and investment banking. (That meant no more paying a.n.a.lysts for specific deals managed by their firm's bankers, and no more a.n.a.lyst partic.i.p.ation in banking-related road shows or sales presentations.)-A total ban on IPO spinning, the practice of investment banks currying favor with corporate executives by them giving shares in hot IPOs.-An obligation for each of the firms to hire at least three independent research firms to give research choices to the firm's clients, in addition to its own research.-The public disclosure of a.n.a.lyst conflicts.31 "This agreement will permanently change the way Wall Street operates," Spitzer announced, flushed with pride.

Would it really? Certainly, I was happy that finally someone had taken a hard look at our industry and dumped its dirty laundry into the Street's collective lap. I just hoped he wouldn't stop with the firms but would also take his crusade right to the door of the individuals who broke the rules. After all, I thought to myself, if firms are fined, that firm's shareholders suffer. By contrast, if individual executives are punished, shareholders will benefit because executives are more likely to behave better in the future and spend more time actually running their companies instead of lining their own pockets.

But Eliot Spitzer decided to put the brakes on. The $1.4 billion in fines, while seemingly substantial, were small when compared with the more than $80 billion in profits made by these banks over the past few years. And by allowing the accused to settle the cases, without admitting or denying guilt, Spitzer stopped his investigation in its tracks. We will never know for sure how far up the chain any of these conflicts went or how involved top Wall Street executives, including Sandy Weill, actually were in the research process. In order to create real change on Wall Street, I believe, prosecutions of Wall Streeters needed to go forward, wrongdoing had to be proven, and then heads had to roll-big ones. Unfortunately, it now looked as though this would never happen.

The feds, but not Spitzer, did, however, go after one specific individual. As 2003 dawned, the noose around Frank Quattrone's neck grew tighter and tighter. He was still at CSFB, but the word was that he could soon actually face federal indictment. On March 4, 2003, CSFB employees received a terse e-mail announcing that Frank had resigned, "effective immediately." CSFB said that "the Firm and Mr. Quattrone have agreed that it was in their respective best interests for Mr. Quattrone to separate from the Firm at this time."

Just as Martha Stewart wasn't charged with insider trading by the U.S. Attorney's Office, Frank was never charged with IPO spinning, or even encouraging fraudulent research by some tech a.n.a.lysts who reported to him. Instead, on May 12, 2003, he was charged with obstructing justice. The key evidence was an e-mail he had sent to his staff suggesting a routine year-end file cleanup. In 2004, after one mistrial, he was found guilty. At this writing, he faces 18 months in prison but is appealing the verdict.

On April 9, 2003, just a few weeks after my 50th birthday, I officially left CSFB. "As most of you know," I wrote in a note to clients and colleagues, "I have been planning for a long time to take early retirement from CSFB after 20 years in the telecom industry and 14 years on Wall Street. CSFB's wireline telecom services research is now solidly in the able hands of Lara Warner and my terrific long-time teammates Julia Belladonna, Ido Cohen, and Connie Marotta...It has been a pleasure working with each of you over the past years. I have thoroughly enjoyed and benefited from every discussion and debate we have had. I hope you feel the same."

Jack and I were twinned for so many years that I suppose it was fitting that just days after my Wall Street story ended, so, too, did his saga. On April 28th, 2003, Jack settled the SEC charges that had been levied against him without admitting or denying guilt. He agreed to pay a total of $15 million in fines. It was less than half of the severance package he'd collected upon "resigning" from Salomon Smith Barney. In effect, Citigroup shareholders had paid Grubman's penalty and then some. For Jack, not a bad trade, as they say on the Street.

Though Jack also was censured and barred from working in the securities industry for the rest of his life, he ended up a winner by Wall Street's rules of maximizing wealth. He netted approximately $17 million simply by getting fired. His ma.s.sive legal bills would be paid by Citigroup, and nothing prevented him from setting up a consulting business or even becoming an executive of a publicly-traded company. Indeed, a recent press report says he is attempting to resurrect himself as a telecom consultant.32 Because Spitzer opted not to pursue the Weill connection, we'll never know for sure what happened on that end. Because Spitzer opted not to pursue the Weill connection, we'll never know for sure what happened on that end.

Jack has said many times, by way of defense, that he was a true believer in this new world, that he honestly did think that demand for bandwidth was infinite, and that it was this misguided belief-not his desire to maximize telecom banking fees or any pressure from the banking side-that led him to be so publicly bullish on stocks.

True? I don't know. But I see things this way: Jack was so utterly certain that he had the inside track with so many telecom companies that it never occurred to him for a moment that what they told him might not be true. After all, if anyone would know what was going on, it was Jack. He thought he had a special, insider's relationship with these executives, and many investors thought so too. But the special relationship Jack had with WorldCom is, of course, what ultimately undid him. Without the largest corporate fraud in history, Jack might still be an a.n.a.lyst today, still playing the insider game to the tune of millions. It is just too ironic: the savviest, best-connected guy on the Street turned out to be, apparently, the unwitting dupe in one of the most audacious white-collar crimes ever.

Jack, the most accomplished player of the insider game, was ultimately destroyed by it. He thought he still had the edge-but that edge only mattered when the companies had the juice to pump their stock prices. As the telecom industry unraveled, Jack became just another a.n.a.lyst, a clueless conduit for the desperate mutterings of those who hoped to postpone the inevitable just a little bit longer.

He trusted his "friends." But with friends like Scott Sullivan and Bernie Ebbers, who needed enemies? In return for his fealty, they burned him. They burned everyone else, too, of course, but they really burned Jack. In the end, he was an outsider after all. The duper had been duped by criminals far more clever than he.

As I packed up my things, I contemplated what I had experienced in my time on Wall Street. I'd come in as an idealist and left a cynic. I was leaving almost exactly when I had planned. But that was probably the only thing that came out exactly as planned. Certainly, I had never imagined that the industry I covered would become so enormous and so central to the world. Nor could I have fathomed that it would collapse in a whirlwind of scandal, fraud, and overinflated expectations.

Overall, however, I had thoroughly enjoyed most of my time as an a.n.a.lyst. It was more intellectually stimulating and physically exhausting than any job I could have imagined back in my college days, or even in my early stints at MCI and Coopers & Lybrand. But I also had regrets about the job I had done and how I had handled some situations. For example, I should not have played banker, pitching my firms' investment banking services to Ameritech and AT&T, when the former was being acquired by SBC and the latter was preparing an IPO of its wireless unit.

Nor should I have had as much faith in the SEC as I did. Each time I heard allegations about leaks of inside information or about a.n.a.lysts twisting their stock ratings to serve bankers, not investors, I allowed myself to believe that the SEC (or some other regulatory agency) was already on the trail. Sure, I had heard the SEC was keeping tabs on a.n.a.lysts, even keeping a fat file on Grubman, and that Salomon's compliance department had investigated him. In retrospect, I should have taken it upon myself to report the leaks I heard about rather than waiting for the regulatory agencies to figure out what was going on. I was far too willing to keep my head down, focusing narrowly on my research and ignoring what appeared to be going on around me.

Finally, my research certainly should have dug deeper into the numbers reported by such companies as WorldCom, Qwest, Global Crossing, and even IDB back in 1994. Catching understated expenses or overstated revenues is not easy. Nevertheless, I should have been more alert to the possibility of financial manipulation and to the corporate and accounting firm cultures that might foster it.

As I walked out of the doors at CSFB onto Madison Avenue for one last time, I shuddered to remember the distinction I'd made between the advertising firms of Madison Avenue, the "street where they fool people," and Wall Street. I had walked up Madison that summer day in 1989 with great disdain for the inherent fakery of the ad business, especially compared with the empiricism and objectivity of Wall Street research.

Ironically, several Wall Street firms, including CSFB, had since moved to Madison Avenue, where they apparently learned a lot from advertising firms. As I walked up that avenue for the last time as a Wall Street a.n.a.lyst, convincing people to buy a particular brand of soap suddenly seemed like a pretty harmless gig after all. At least it got you clean, and there isn't enough soap in the world to do that to Wall Street.

Epilogue: Where Are They Now?

As of this writing....

Phil Anschutz-Anschutz remains chairman of the Anschutz Corp. In 2003, Anschutz settled a suit brought by Eliot Spitzer, alleging improper receipt of IPO shares from Salomon Smith Barney, by paying $4.4 million.1 Since then, he has funded the Oscar winner Since then, he has funded the Oscar winner Ray, Ray, owns owns The San Francisco Examiner The San Francisco Examiner and Los Angeles's Staples Center, and has stakes in the L.A. Lakers basketball team and the L.A. Kings hockey team. He still owns 18 percent of Qwest, worth about $1.1 billion, not counting the $1.9 billion in Qwest shares he had sold earlier. In contrast to Joe Nacchio, Anschutz was not charged in the March 2005 SEC complaint against five top Qwest executives. He is said to be worth about $5 billion. and Los Angeles's Staples Center, and has stakes in the L.A. Lakers basketball team and the L.A. Kings hockey team. He still owns 18 percent of Qwest, worth about $1.1 billion, not counting the $1.9 billion in Qwest shares he had sold earlier. In contrast to Joe Nacchio, Anschutz was not charged in the March 2005 SEC complaint against five top Qwest executives. He is said to be worth about $5 billion.2

C. Michael Armstrong-The former AT&T CEO gambled and lost when it came to betting on cable as the future of AT&T. He retired in 2002 after he sold AT&T's cable operations to Comcast. Today, he remains on the boards of Citigroup, Hospital Corporation of America, and the Parsons Corporation. He's also taken to academia-he's a visiting professor at the Sloan School of Management at MIT, and he was recently named to a volunteer position at Johns Hopkins Medicine that oversees cooperation between the noted medical school and teaching hospitals in Baltimore. He has become a champion of stem cell research. He splits time between Darien, Connecticut, and Naples, Florida, with his wife, Anne.3

Jim Crowe-The former CEO of MFS has been CEO of Level 3 Communications since 1997.4 He's still going strong, though Level 3's stock price has never recovered from its dot-com collapse. He's still going strong, though Level 3's stock price has never recovered from its dot-com collapse.

Carol Cutler-Left the investment profession and is now working at Calvin Klein in Manhattan as a gift registry specialist.

Brady Dougan-When John Mack was ousted at CSFB in 2004, Dougan stepped in as the new CEO. Unlike Mack, however, he has not been made co-CEO of the parent company, Credit Suisse Group.5 Trying to smooth over the rough edges, he keeps his tie tightened around his neck more often. Trying to smooth over the rough edges, he keeps his tie tightened around his neck more often.

Bernie Ebbers-The former WorldCom chief, convicted of overseeing the company's $11 billion fraud, was sentenced to 25 years in prison on July 13,2005. If his appeal fails, he will likely spend his remaining days at the federal prison in Yazoo City, Mississippi, about 100 miles from his former home in Brookhaven, Mississippi. Since his sentence is more than 10 years, he did not qualify for placement at Yazoo's minimum security prison. He will likely be placed in a facility with about 1,750 other inmates. He'll sleep in a bunk bed with a roommate in a cubicle-like room. He'll also work seven hours a day, five days a week, as long as he's medically able, and will be given tasks ranging from food service and plumbing to painting and grounds-keeping. He might have a chance to ride a tractor, one of his pa.s.sions.6 Ebbers's wife, Kristie, will be allowed to visit for a minimum of four hours a month. Ebbers's wife, Kristie, will be allowed to visit for a minimum of four hours a month.7 Kristie, meanwhile, was allowed to keep a modest home in Brookhaven, $50,000 in cash, and a retirement account-livable, but a far cry from her days as the wife of a billionaire.8

Bill Esrey-The former Sprint CEO was forced out in 2003 after the IRS raised questions about some tax shelters he used when exercising a large number of stock options. If the IRS requires him to pay up, he could face substantial tax liability and penalties. Yet Esrey was given a severance package of over $10 million in addition to 10-year memberships in two country clubs as well as office s.p.a.ce and secretarial help for the rest of his life.9

Ed Greenberg-Remains a successful senior telecom investment banker at Morgan Stanley.

Jack Grubman-Jack is still trying to hustle his vision of the telecom industry. A Fortune Fortune article described him meeting with small-time paging companies in order to impart his wisdom. While a defendant in numerous cla.s.s-action lawsuits filed by disgruntled investors, he still maintains a six-story town house in Manhattan's Upper East Side that he once claimed would be featured in article described him meeting with small-time paging companies in order to impart his wisdom. While a defendant in numerous cla.s.s-action lawsuits filed by disgruntled investors, he still maintains a six-story town house in Manhattan's Upper East Side that he once claimed would be featured in House & Garden. House & Garden. He also owns a home in East Hampton, Long Island. The twins graduated from the 92nd Street Y preschool and now attend public school right near the town house. He also owns a home in East Hampton, Long Island. The twins graduated from the 92nd Street Y preschool and now attend public school right near the town house.10 On January 24, 2003, a federal court consolidated approximately 80 actions against Salomon Smith Barney, Inc. and Jack Grubman, et al., involving allegations of securities fraud in connection with a.n.a.lyst research reports, into nine lead actions. At this writing, several cases are still pending before the Honorable Gerard E. Lynch, U.S. District Judge, Southern District of New York. On January 24, 2003, a federal court consolidated approximately 80 actions against Salomon Smith Barney, Inc. and Jack Grubman, et al., involving allegations of securities fraud in connection with a.n.a.lyst research reports, into nine lead actions. At this writing, several cases are still pending before the Honorable Gerard E. Lynch, U.S. District Judge, Southern District of New York.

David Komansky-In the wake of the a.n.a.lyst scandals and subsequent settlements with Spitzer, Komansky pushed up his planned retirement date by a year, handing over the Merrill Lynch CEO post to Stanley O'Neal in late 2002 and the chairmanship in April 2003.

John Mack-After being forced out of CSFB in a power struggle with his Swiss bosses in 2004, "Mack the Knife" played some golf, briefly took on the role of "point man" in a dissident movement involving disgruntled seat holders on the New York Stock Exchange, and spent less than a month as chairman of a hedge fund. He triumphantly returned to Morgan Stanley on June 30, 2005, taking over from his nemesis, ousted chairman and CEO Phil Purcell, who had alienated the Morgan Stanley bankers.11

Joe Nacchio-Nacchio is the latest target of regulators, who filed a civil suit against him and six other former Qwest executives on March 15, 2005. The SEC accused Nacchio and the others of a "ma.s.sive financial fraud."12 He still lives in Mendham, New Jersey, with his wife, and resurfaced in 2004 as a consultant and even part-owner of BCN Telecom, a small-business telecom firm. He still lives in Mendham, New Jersey, with his wife, and resurfaced in 2004 as a consultant and even part-owner of BCN Telecom, a small-business telecom firm.13 More than likely, his real job today is to prepare for the most important trial of his life, a trial that could take away from him much of the over $200 million he made by selling Qwest shares between 1999 and 2001. The U.S. Department of Justice has a criminal investigation underway of the fraud at Qwest, which raises the possibility of jail time if Nacchio is charged and convicted. More than likely, his real job today is to prepare for the most important trial of his life, a trial that could take away from him much of the over $200 million he made by selling Qwest shares between 1999 and 2001. The U.S. Department of Justice has a criminal investigation underway of the fraud at Qwest, which raises the possibility of jail time if Nacchio is charged and convicted.14

d.i.c.k Notebaert-After Joe Nacchio was fired, Notebaert became chairman and CEO of Qwest on June 17, 2002, and remains there today. Qwest made an abortive bid for MCI in 2005.15

Frank Quattrone-After his first trial ended in a deadlocked jury, Quattrone was retried and convicted of three counts of obstruction of justice, on May 4, 2004.16 He's likely sitting in his beautiful home overlooking the famed Pebble Beach golf course as he appeals the 18-month jail sentence. A federal appeals court heard arguments in the case July 12, 2005. He's likely sitting in his beautiful home overlooking the famed Pebble Beach golf course as he appeals the 18-month jail sentence. A federal appeals court heard arguments in the case July 12, 2005.17 If his appeal fails, Frank will likely serve his sentence in a minimum-security, dormitory-style prison in California, much like Martha Stewart's famed "Camp Cupcake" in West Virginia. If his appeal fails, Frank will likely serve his sentence in a minimum-security, dormitory-style prison in California, much like Martha Stewart's famed "Camp Cupcake" in West Virginia.