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<nettime> from the dotcom observatory
geert lovink on Tue, 7 May 2002 22:24:23 +0200 (CEST)

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<nettime> from the dotcom observatory

Dear Nettimers,

over the month April, nothing much happened, the dotcom observatory reports.
That is, all scandals deepened, with more and more allegations and inquiries
against auditing firms and investment banks under way. Reporting about
Enron, Merill Lynch and Andersen seems to reach a saturation point, with
still so much more to find out. On Monday the criminal court case against
Andersen in a Houston court began. Yet, it is still way too early to
estimate if and what the longterm consequences will be on the Masters of the
Universe type of business. US-American economic recovery stagnates at the
moment but it's hard to connect the Dow slipping under 10.000 to the ongoing
financial scandals. What is of interest for the dot com watcher is the slum
of the global telcos, which seems to become a never ending saga, a collapse
of unknown proportions. The decline of the media sector (with the Krich
Gruppe bankrupcy the biggest in German history) and the fall of Newscorp
shares are also topics to watch out for. The pay TV crisis is cauysing
considerable fall out effects. The observatory plans to come out with two
special issues on AOL-Time Warner and Yahoo. AOL-TimeWarner last week booked
the greatest loss in US-American corporate history. All in all, giant
figures, huge losses, here and there and everywhere. But does it really have
an effect or will the world only feel the aftermath shocks one or two years

Thanks to Dave Mandl for contributing.

Ciao, Geert


1.   Gallup News Poll on Enron and Microsoft
2.   William Greider: The Enron Nine (The Nation)
3.   Reuters: High-Tech Pay Drops First Time in a Decade
4.   WSJ: Two More Wall Street Firms Are Targeted in Trading Probe
5.   Tim Lunn: Europe's Media Phoenixes
6.   E-Dreams, a Film by Wonsuk Chin
7.   Don't Defer, Don't Prefer -- Prosecute (Mokhiber & Weissman)
8.   NYT: Disinformation on Wall Street
9.   Startup.com: a Documentary about govworks.com
10. SEC Sets Investor Summit, Invites Public Participation
11. Salon Review of Philip Kaplan's Fucked Companies book
12. WSJ: Merrill Is Ordered to Reform Way
13. Ditherati:  It's a very Emotional Property
14. Bikemessenger: My Arthur Anderson Story
15. Telecom's Fiber Pipe Dream


1. Gallup - May 1, 2002

Americans Decidedly Negative Toward Arthur Andersen, Enron
Have very positive view of Microsoft

by Jeffrey M. Jones


PRINCETON, NJ -- News about corporations has moved beyond the
business pages to the front pages of most newspapers in 2002. For
much of the earlier part of the year, the collapse of the Enron
energy corporation and the role its accounting firm, Arthur Andersen,
played in its demise were major news stories. Last week, Bill Gates,
the chairman of the Microsoft Corporation, testified in a federal
court against proposed changes to the company's software products.
These changes are sought by nine state attorneys general who have
refused to accept a consent decree between Microsoft and the Justice
Department that would resolve the company's antitrust case.

A recent Gallup poll shows the public has very negative views of
Enron and Arthur Andersen, though many Americans are not familiar
with the accounting firm. The poll shows that the public is not
negative toward all large corporations, however. Nearly eight in 10
Americans say they have a favorable opinion of the Microsoft
Corporation, the most positive reading Gallup has recorded for
Microsoft over the five years these attitudes have been measured.

Arthur Andersen, Enron Images Suffering From Energy Company's Collapse

The poll, conducted April 22-24, shows that nearly half of Americans,
49%, have an unfavorable opinion of the Arthur Andersen accounting
firm, while just 11% have a favorable opinion. A substantial number
of Americans, 40%, are not familiar enough with Arthur Andersen to
rate it. A federal grand jury indicted Arthur Andersen for
obstruction of justice for the destruction of evidence related to a
federal investigation into the Enron collapse. A trial is scheduled
to begin later this month. The company just announced layoffs of
roughly one-quarter of its workforce.

Nearly three in four Americans, 74%, have an unfavorable opinion of
the Enron energy corporation, while only 8% have a positive view. The
Houston-based energy company filed the largest bankruptcy claim in
U.S. history last December, leaving many employees jobless and
without much of their retirement savings. Several Enron executives
have already testified before Congress about the company's collapse.
About one in five Americans do not have an opinion on Enron.

Microsoft Rated Positively

In stark contrast to Enron and Andersen, the vast majority of
Americans have a favorable opinion of Microsoft. The poll finds 79%
of the public giving Microsoft positive ratings, while just 12% have
a negative view of the computer software company. Microsoft produces
the Windows series of operating systems, used on most personal
computers. A federal judge found Microsoft guilty of violating
antitrust laws, and the federal government and Microsoft negotiated a
settlement last year to end the case. However, the settlement is
still awaiting court approval, and nine states are seeking to impose
tougher penalties on the software company. Last week, Microsoft
chairman Bill Gates testified in Washington against those states'

Microsoft's current rating is up sharply from a poll conducted last
summer, at which time 60% of Americans held a positive view of
Microsoft, and is the highest Gallup has recorded in nine polls
dating back to 1998. The previous high was a 67% favorable rating in
November 1999.


2. William Greider: The Enron Nine
The Nation, May 13, 2002

For those already exhausted by the torrent of Enron disclosures, I would
 not recommend reading the "Consolidated Complaint" filed by defrauded
 investors for a literary experience. The class-action lawsuit is 500
 pages long, not counting appendixes, and dense with tedious legal
 repetitions and the mind-numbing complexities of Enron's financial
 transactions, most already known. On the other hand, this document tells
 an eye-popping story of how the Wall Street system really works, and it
 resonates with political significance because the plaintiffs' lawyers are
 redirecting public outrage--and multibillion-dollar damage claims--at the
 best and most powerful names in American finance. Nine leading banks and
 financial houses have been added as defendants and depicted as intimate
 insiders in what the lawsuit calls the "Enron Ponzi scheme." They were
 the engineers, it is asserted, who devised manipulative deals concealing
 the truth. They were also principal beneficiaries of this massive scam.

 The "Enron Nine" (if we may call them that) are J.P. Morgan Chase,
 Citigroup, Credit Suisse First Boston, Canadian Imperial Bank of
 Commerce, Bank of America, Merrill Lynch, Barclays, Deutsche Bank and
 Lehman Brothers. These financial institutions collaborated with the
 now-bankrupt energy company in its financial sleight of hand--the deals
 that enabled Enron to inflate its profits, conceal its burgeoning debts
 and push its stock price higher and higher. Together and individually,
 the banks and brokerages raised at least $6 billion for Enron through the
 debt or stock issues sold to unsuspecting investors from 1996 through
 2001, when the Enron illusion finally expired. Another $4 billion or more
 was channeled into Enron's "partnerships" like Jedi, Chewco and LJM1 and
 LJM2, which became the principal mechanism for hoodwinking shareholders.
 These deals were often hurriedly arranged at year's end to paper over the
 company's true condition and keep the fraud from collapsing.

 Enron was "the golden goose of Wall Street," according to the investors'
 complaint. The banks "earned" hundreds of millions, billions altogether,
 in securities commissions and consulting fees as well as from the
 inflated interest rates they charged Enron on disguised loans. In fact,
 selected senior managers at Morgan, Citigroup, Merrill and others even
 invested millions of their own money in Enron's secretive "special
 entities," promised extraordinary returns of 1,000 percent or more. As
 one reads through these financial intricacies, the gut question is the
 same one asked about Richard Nixon during the Watergate scandal: What did
 the bankers know and when did they know it? If they were not ringleaders,
 then they must be as gullible as the shareholders who were bilked. And,
 if these allegations are true, why isn't there also a federal grand jury
 looking into the possibility of criminal fraud?

 At this point, these are only allegations. Though most of the supporting
 facts are already established, the legal risk of launching this bold
 foray against the financial establishment is considerable. It might lose,
 because the plaintiffs must prove not simply that the banks aided and
 abetted Enron's deceptions but that they were also principal authors. The
 banks are somewhat shielded from liability by Supreme Court rulings and
 the "tort reform" law that Congress enacted for the financial industry
 back in 1995 [see Greider, "Enron Democrats," April 8 and "Enron: Crime
 in the Suites," February 4]. They also have deep pockets. As a practical
 matter, Enron itself is not going to have much left for compensating
 shareholders after the bankruptcy court gets through with it. Indeed, in
 bankruptcy proceedings, the creditors standing first in line with claims
 on the carcass are the same banks--led by J.P. Morgan and
 Citigroup--accused by this lawsuit of fueling the fraud. Other, less
 privileged creditors may decide to challenge the legitimacy of the banks'
 claims, using a similar argument that Morgan, Citigroup and others were
 actually Enron insiders, not arms-length lenders.

 "The Enron fiasco represents a massive wealth transfer from public
 investors...to corporate insiders, Wall Street bankers and the accounting
 and legal professionals who perpetrated the fraud," the lawsuit declares.
 Nearly $25 billion was lost by people, pension funds and other
 institutional investors who purchased Enron shares at fraudulently
 inflated stock prices, peaking above $90, only to see the stock price
 collapse, eventually to pennies. This vast class of injured parties is
 led by the University of California's Board of Regents on behalf of its
 pension fund, which lost $145 million. The lawsuit was crafted by William
 Lerach and a squad of lawyers from Milberg Weiss Bershad Hynes & Lerach,
 the West Coast firm that has successfully pursued scores of
 investor-fraud lawsuits. Arthur Andersen and two premier law firms,
 Vinson & Elkins of Houston and Kirkland & Ellis of Chicago, are included
 among the co-defendants (led by Enron and thirty-eight of its executives
 and directors) because they blessed the legality of the fraud. Lerach is
 currently trying to negotiate a separate settlement with Andersen that
 could bolster his case enormously if the firm agrees to turn over its
 internal documents. The Wall Street Journal editorial page is already
 attacking Milberg Weiss and the California regents, a sure sign the
 citadel of finance is rattled.

 Win or lose, the lawsuit poses numerous embarrassments for Washington
 politics, and Congressional reformers should study it for a summary of
 the corrupted laws that need to be re-examined. Perhaps the most
 important one is this: The merger of commercial banks and Wall Street
 investment houses, ratified by Congress in 1999 and legalizing the new
 financial conglomerates like Citigroup and J.P. Morgan Chase, has already
 reproduced the very scandals of self-dealing and swindled investors that
 led to the legal separation of these two realms seventy years ago in the
 Glass-Steagall Act. Morgan and Citigroup senior executives, for example,
 consulted Enron's top executives almost daily on how to solve the
 company's deepening financial problems, but that knowledge was never
 shared with investors to whom the banks sold Enron shares and debt
 securities or, for that matter, with other banks who took a share of
 syndicated loans. The banks' stockbrokers maintained "strong buy"
 recommendations even as Enron entered its "death spiral," as the lawsuit
 calls it.

 Meanwhile, Morgan and Citigroup executives, evidently nervous about the
 looming meltdown, were arranging insurance to hedge their own
 commercial-lending exposure to Enron. Morgan's insurance company
 subsequently refused to pay up on the grounds that the bank had concealed
 the fraudulent nature of its Enron transactions. Morgan sued to collect;
 a federal judge ruled for the insurer. Likewise, Citibank's supposed
 commodity swap with Enron was in fact a disguised loan, the suit claims.
 "In interacting with Enron, Citigroup functioned as a consolidated and
 unified entity," the lawsuit charges. "There was no so-called Chinese
 wall." But when Congress repealed Glass-Steagall, it was assured that the
 new mega-banks would keep their conflicting obligations separated by
 "firewalls" within the organizations. That promise, always improbable
 sounding, now appears to be a hoax. When you think about it, how could a
 bank's senior managers compartmentalize what they knew about Enron's
 internal troubles as investment counselors and separate it from their
 fiduciary obligations as bankers to the people who park their savings
 with the bank? Especially when some of the bankers were personally
 invested in schemes set up to conceal the truth?

 The lawsuit also documents the duplicitous uses of freewheeling stock
 options. Even as company officials worked with the bankers to keep the
 game going, Enron insiders were cashing stock options and selling off
 $1.2 billion of their own shares. The lawsuit provides a narrative in
 five-color charts that depict the timeline of how Enron execs pumped up
 profit and the stock price with repeated gimmicks devised by their
 bankers, but meanwhile sold their own stakes on the "good news."

 The theory of the case goes like this: Enron's glory days were actually
 quite brief. Its trading business was launched in 1990, but big flaws in
 the business plan were already apparent to insiders by 1995. The venture
 was simply not as profitable as its founders had imagined or the
 expanding marketplace of energy deregulation was not keeping up with
 their expansive promises to investors. Either way, the company started
 cooking its books, inflating profits from legitimate long-term energy
 contracts by booking future-year returns upfront (an accepted practice
 that requires a company to downgrade its profits in subsequent years when
 initial claims prove wrong). Instead of acknowledging error, Enron began
 its ventures in self-dealing--setting up the "special purpose entities"
 (SPEs) with Star Wars names to pretty up its balance sheet. These
 transactions evolved into Super Ponzi.

 The essential element of a Ponzi scheme is the promise of quick,
 extravagant returns paid to initial investors, financed with the stream
 of money raised from subsequent investors. (Charles Ponzi's 1920s fraud,
 the Security Exchange Company, looks quite moderate alongside Enron.) The
 illusion always collapses eventually because, despite what you might
 think, there is not an infinite supply of gullible fools. Enron's run-up,
 like Ponzi's, required a willing suspension of disbelief among otherwise
 astute investors, and that is why the prestigious banks (not to mention
 auditors and law firms) were so vital to the scheme. If J.P. Morgan or
 Citibank or Merrill Lynch was managing the new security issue and itself
 lending to Enron, who could doubt its soundness? The cumulative
 impression, as one reads through the labyrinth of deal-making, is that of
 a deranged bookkeeper concocting a paper castle in the air. Only these
 bankers were doing the construction, as the legal complaint repeatedly
 reminds. Did they too get caught up in the illusion? Or were they just
 trying to protect their golden goose?

 Enron's "partnerships" essentially allowed the company to sell assets to
 itself--a Brazilian utility, commodity trading contracts, broadband
 capacity--and to rig the prices and profits on both sides of the
 transaction, then book the sale as rising revenues for Enron and thus
 send the share price higher. "In order for Enron's accounting scheme to
 work, the parties involved had to be controlled by Enron," the lawsuit
 explains. "But this control and affiliation had to be concealed." The
 selected private investors, who received lucrative rewards for putting up
 front money for Jedi or Chewco or the others, understood this reality
 because they were assured by Enron execs managing the schemes of
 exclusive access to the company's charmed opportunities. If they knew,
 the bankers who arranged the SPEs must also have known.

 Keeping Enron's stock price aloft was the crucial imperative for all
 these parties. The company was borrowing billions in the short-term money
 market to finance its expansions but had to issue long-term debt
 securities to pay off the short-term paper. If the share price faltered,
 Enron could lose its investment-grade credit rating and access to
 long-term credit. The banks would lose their ability to sell more debt
 and their own commercial loans to Enron might even be imperiled.

 With its distinctive circular logic, Enron was in effect creating
 "profits" from its own soaring share price--and vice versa. The fatal
 flaw, however, was embedded in the deals themselves. To reassure outside
 investors and presumably the bankers, these special entities included a
 promise that if things went poorly and the share price fell, the entities
 would be made whole again with--guess what?--new issues of Enron stock, a
 consequence sure to drive the share price still lower. This bind gave
 insiders a strong motive to maintain the deception. If they stopped
 pedaling, the bicycle would fall over.

 So, as the lawsuit describes, the financiers and Enron executed an
 accelerating series of concealed transactions--new "entities" created to
 offload more debt from Enron and gull more shareholders. These deals
 typically occurred at year's end or the close of a quarter when a very
 bad financial report was bearing down on the company or when old
 investors were withdrawing from the existing partnerships. The bankers
 had to find new money and invent new entities to cover the looming
 discrepancies of older ones. Law firms had to vet the documenting papers
 for legality. Arthur Andersen auditors had to approve the accounting. Or
 else all of them would have a lot of explaining to do.

 One of the most egregious episodes occurred in December 1999 when Merrill
 Lynch was managing the creation of LJM2 but couldn't find sufficient
 outside capital to make the partnership look like a bona fide
 "independent" entity. Enron had just executed one of its most brazen
 fictions--announcing that its new trading of fiber-optic broadband
 capacity was off to a tremendous start and promised unprecedented profit
 levels (in fact, the broadband market was drowning in too much capacity,
 and Enron trading partners like Global Crossing were on the brink of
 their own meltdowns). As Christmas approached, Enron's banks announced an
 early gift for high-level collaborators at the other banks--all of them
 would put up virtually 100 percent of the LJM2 financing and thus reap
 the bonanza for their banks and for themselves as personal investors. For
 six months Enron stock had been trading at around $40, but thanks to
 corporate lies and this new infusion of phony financing, the share price
 shot up to above $70. And a very Happy New Year was had by all.

 The Enron Nine, having already announced their innocence, will get their
 turn when they file their rebuttals in the next month or two. One line of
 defense is likely to be that while these deals may sound fictitious and
 fraudulent to unsophisticated outsiders, they are actually standard
 transactions in high finance. The scariest implication of Enron is that
 maybe they are right, at least in a narrow legal sense. The terms of
 finance, the meaning of profit and loss, capital and ownership, have been
 so pushed out of shape by a generation of "market reform" politics, that
 it is possible that Enron, except for the scale of its fraud, does
 resemble Wall Street routine far more than anyone is ready to admit.

 The daunting task of reform, already facing growing timidity in Congress,
 may require letting the lawyers dig to the bottom of this
 mess--aggressive trial lawyers like Milberg Weiss and courageous public
 prosecutors. In that regard, New York Attorney General Elliot Spitzer has
 bravely stared down Merrill Lynch on the duplicity of its stock analysts
 and may win important structural reforms from it and other Wall Street
 firms. Michael Chertoff, the tough Republican prosecutor who is US
 assistant attorney general, stood his ground against enormous pressure to
 let Arthur Andersen off the hook on its criminal indictment.

 William Lerach, the trial lawyer who has taken on Wall Street banking, is
 gutsy enough but might, of course, settle the shareholders' case for the
 right money--big money. But if the banks refuse to deal and the Enron
 Nine go to public trial, it could become an educational spectacle that
 turns them into the O.J. Simpson of modern American capitalism.


High-Tech Pay Drops First Time in a Decade
Mon Apr 29, 5:26 PM ET

PALO ALTO, Calif. (Reuters) - Never mind that information technology workers
are making a lot less from stock options; their base salaries and bonuses
are also falling sharply, a new survey released Monday showed.

Information Technology managers should see an average 8 percent decline in
total compensation this year, while rank and file IT workers should expect
their pay to fall by 11 percent, according to a study by high-technology
trade publication Information Week.

The study found that IT managers earn a median base salary of $83,000 a
year, while IT staffers make $61,000. The lower salaries many of them are
seeing this year represents the first such drop in a decade, according to
Information Week, which surveyed more than 10,000 people employed in

Bonuses are falling even more than salaries. Information Week said managers
who last year got a median bonus of $17,000, will see bonuses of about
$6,000 this year. Median bonuses for staffers should fall from $11,000 to

The study also found some other changes for the worse in the IT work place.
It said workers generally had more stress and lower morale.


4. Two More Wall Street Firms Are Targeted in Trading Probe
April 25, 2002

A major investigation into alleged abuses in the market for initial
public stock offerings has widened to include two more securities
firms, both leading underwriters of technology issues.

The regulatory unit of the National Association of Securities Dealers
has notified J.P. Morgan Chase & Co. and the Robertson Stephens unit
of FleetBoston Financial Corp. that they could face civil charges for
taking excessive commissions from big investors who received hot IPO
shares in 1999 and 2000, according to people familiar with the matter.

The NASD is investigating whether Wall Street firms improperly gave
favored investors larger allotments of coveted IPO stocks during that
period. Regulators also are looking at whether those clients in return
kicked back part of their quick IPO profits to the securities firms,
in the form of inflated commissions on other stock trades.

The probe is the biggest regulatory crackdown on the excesses of the
dot-com stock boom of the 1990s. During that era, investors scrambled
to get shares of Internet IPOs, certain of quick profits, as startups
such as VA Linux Systems Inc. soared as much as seven times their IPO
price on their first day of trading.

In a separate investigation, the Securities and Exchange Commission is
examining whether some securities firms coerced investors who got hot
IPO shares into placing orders for the same stocks at higher prices on
the first day of trading, as a condition of getting the IPOs. That
practice, known as "laddering," contributed to the huge one-day
run-ups in many IPOs during the tech-stock mania.

The SEC's laddering probe has focused on firms including Goldman Sachs
Group Inc., Morgan Stanley, Robertson Stephens and J.P. Morgan
Chase. The agency has been taking testimony from witnesses in that
case, according to lawyers tracking its progress. Morgan Stanley has
denied any wrongdoing. Goldman and Robertson Stephens have declined to
comment on the investigation.

"It's clear that this could be a broader problem for Wall Street,"
said Saul Cohen, a partner at New York law firm Proskauer Rose LLP who
specializes in securities regulation. In the early phases of the IPO
investigation, much of the focus centered on the activities of Credit
Suisse First Boston. The probe of the big securities unit of Credit
Suisse Group led to the firing of three of its brokers, the
resignation of its chief executive and a settlement with regulators in
January, in which CSFB paid $100 million in fines and restitution
without admitting or denying wrongdoing.

It is expected that any penalties related to potential regulatory
action against Robertson Stephens or J.P. Morgan Chase would be lower
than in the CSFB case. That's because the two firms, though big
players, didn't have as large a market share in technology IPOs as did

Notification Procedure

Within the past few weeks, Robertson Stephens and J.P. Morgan Chase
have received warnings from the NASD that they might be charged with
rule violations in connection with its two-year-old probe. Those
notifications came in the form of so-called Wells notices, according
to the people familiar with the inquiry. The NASD uses this procedure
to inform respondents that its enforcement staff plans to recommend
filing civil disciplinary charges against them. Before bringing the
charges, the NASD staff invites respondents to explain why they
shouldn't be charged.

The possibility of charges against Robertson Stephens in the case
could complicate efforts announced last week by FleetBoston to sell
the securities firm, whose price tag could reach $500 million or
more. FleetBoston officials couldn't be reached for comment. But some
legal specialists say potential buyers would be likely to ask
FleetBoston to assume any liabilities resulting from the NASD and SEC
inquiries. Beyond possible fines and other regulatory penalties, such
liabilities also could include damages in connection with a series of
civil class-action lawsuits brought against Wall Street by investors
alleging that IPO prices were manipulated by laddering and other

Andrew J. Frackman, a partner at O'Melveny & Myers LLP, which
represents Robertson Stephens in connection with IPO litigation,
referred questions about the case to a Robertson Stephens
spokeswoman. The spokeswoman said the firm couldn't comment on a
regulatory matter.

Joe Evangelisti, a spokesman for J.P. Morgan Chase, said, "There is a
range of charges that regulators are reportedly considering against
various Wall Street firms. We believe that the charges NASD is
considering against our firm are at the low end of the range."

The investigation brought to light a system of behind-the-scenes
abuses by brokers who took advantage of the enormous paper profits
generated by IPOs during the dot-com boom to enrich themselves and
their firms. In the settlement announced Jan. 22, regulators cited one
CSFB broker who earned $4 million in a single year, 1999, $1 million
of which came from such "excessive commission payments."

The investigation grew out of complaints from money managers and other
investors whose IPO allocations were curtailed in 1999 and 2000 if
they didn't agree to pay unusually high commissions. Regulators say
that some CSFB customers were pressured to pay a percentage of their
IPO profits to the firm in the form of commissions as high as $3 a
share -- compared with the normal rate of 5 cents a share -- for
routine trades of big, liquid stocks such as International Business
Machines Corp. and AT&T Corp.

In its settlement with CSFB, NASD Regulation Inc., the NASD's
regulatory arm, cited violations of both federal securities laws and
the NASD's own rules, particularly one that bars brokers from sharing
profits of customers' accounts. In separate outlines of the firm's
alleged misconduct, NASDR and the SEC said more than 100 CSFB clients
-- mostly loosely regulated investment pools known as hedge funds --
were pressured to pay 35% to 65% of their IPO profits back to the firm
in the form of commissions.

Prominent Role

The possible involvement of Robertson Stephens and J.P. Morgan Chase
in the scandal traces to their prominent role in underwriting
technology stocks. Chase Manhattan Corp. acquired Hambrecht & Quist, a
San Francisco firm that catered to technology and other growth
companies, in 1999, before joining forces with J.P. Morgan & Co. the
following year. FleetBoston acquired Robertson Stephens, another San
Francisco technology specialist, in 1999.

Though both firms ranked in the top 10 in IPO underwriting in 1999 and
2000, neither had the market presence of CSFB in taking tech stocks
public. In addition to the civil inquiries by the NASD and the SEC,
CSFB was also investigated by the Manhattan U.S. attorney's office for
possible criminal violations relating to its IPO commission
practices. That criminal investigation was dropped in November.

For the two years from 1999 to 2000, Robertson ranked No. 6, by dollar
volume, in lead managing IPOs, with a 4.6% market share, and
J.P. Morgan Chase ranked No. 7, with a 3.7% share, according to
Thomson Financial. By comparison, CSFB ranked No. 3, with a 15.9%

Among IPOs led by Robertson with the largest first-day gains were
FirePond Inc., Delano Technology Corp., Omnivision Technologies
Inc. and Loudeye Technologies Inc. Among big-gaining IPOs led by
J.P. Morgan Chase were net.Genesis Corp., Speechworks International
Inc., Vicinity Corp. and Sunrise Telecom Inc.


5. Europe's media phoenixes
From: Tim Lunn <tim {AT} lunn.com>

(Tornado Insider was the newsletter of the dotcom venture
capitalist scene in Europe that went broke a while ago. /geert)

    N O W  E U R O P E  D I G E S T

     Europe's Online Business Forum
     List Moderator: Steven Carlson
     <mailto:steve {AT} noweurope.com>
     Issue for: Thu, Apr 18, 2002

Tornado Insider is back, OK probably more of a dust-devil to
start with, but good to see that all was not lost.

Not entirely unexpected, like you said Steve, here on the ground
and in FT we heard last week. I read it today first from the
wonderful Mbites [thanks NE for the tip], then NE, then from TI
themselves, teach me to read my e-zines promptly.

Of course, as Mike Butcher already noted, little about this
amongst the news feeds from their colleagues in the media, even
the normally semi-sensationalist Dutch Emerce has not yet picked
it up http://www.emerce.com/.

Here in NL "the comeback" has become the standard for
particularly dotcom related companies who decide to declare
bankruptcy. Cynics point out that this is an excellent strategy
for avoiding overwhelming debts, buying back whatever is left of
value in the failed enterprise, hand picking the best of the
remaining staff and management, renegotiating with any investors
who still have faith and starting again - even under the same
name. Of course it's not that simple. Despite this there is
increasing attention here for the number of companies that go
down this road, with serious questions in the media about the
role of curators and investors. Despite the fact that I have an
nagging feeling that this last has already been a thread recently
on NE, I raise it again because it continues. Same elsewhere?

Personally I'm happy that the gap left by Tornado [isn't it
almost too irresistible to call upon post storm metaphors] will
be albeit partially filled by the restart. Best of luck to Ron
Groen and the team, and of course somewhere still in there Jerome

Tim Lunn
Amsterdam, NL

Our discussion thread:


6.  E-Dreams: a Film by Wonsuk Chin

      Two twentysomething investment bankers developed one simple, great
idea: online shopping with one-hour delivery, and soon quit their
prestigious jobs to funnel what little savings they had into a new Internet
company, which they named Kozmo.com., after their favorite drink, "the

      In the course of a year, Kozmo grew from only 10 employees to over
3,000. They were courted by Amazon.com, inked a deal with Starbucks, raised
over 250 million dollars from investors and had their sights set on the
inevitable IPO.all while the founding members were still in their twenties.

      But then came the market crash of April 2000. Suddenly, the climate
surrounding Internet companies changed. It was now all about profitability
and dotcoms were dropping like flies. The gold rush was over. Now could
Joseph Park, a 28 year old CEO, run the company like the gray hairs in this
downturn of the market?

      e-dreams is a feature-length documentary, which successfully captures
the highs and lows of the dotcom frenzy of the past few years. It is a
behind-the-scenes look at an Internet start-up, chronicling the dramatic
growth of a young company and the fate of its co-founders, Joseph Park and
Yong Kang.

      Director's Comment

      In September, 1999, I returned to the Big Apple after spending almost
a year overseas. But this wasn't the New York I had known for ten years.
Everywhere I turned, there was a dotcom advertisement. Everyone I met was
leaving their jobs to join an Internet company. Suddenly the world became a
different place.

      Then I met Joseph Park, the co-founder of Kozmo.com. I couldn't
believe this 28-year-old man with a baby face was the CEO of the next big
thing. Who was this man? Was he a brilliant computer genius? I wanted to
know more.

      This is the story of one incredible rollercoaster ride. There are no
good guys and bad guys. Just real people. Real people, who made tremendous
sacrifices and along the way, went through an extraordinary part of their

      E-dreams is about momentum. A sheer momentum like a runaway train. It
was exhilarating even as a witness. It's about dreamers. Everyone has a
dream but not many actually pursue it. Here were people who risked
everything to realize their dreams. It almost has the design of Greek
tragedy without even being fictitious. The market crash came out of nowhere.
Like the iceberg in Titanic. But is it really a tragedy? In the end, they
had the ride of their lives. Sometimes, the journey is more fascinating than
its final destination.

Wonsuk Chin


7. Don't Defer, Don't Prefer -- Prosecute
By Russell Mokhiber and Robert Weissman

Let's get one thing straight: a deferred prosecution agreement, also
known as pre-trial diversion, was never intended for serious, repeat
wrongdoers like Arthur Andersen LLP.

The papers are reporting that any day now, maybe even today, the Justice
Department, using such an agreement, will drop its indictment of Arthur
Andersen LLP and put the accounting firm on a type of probation for a
period of time.

If what is left of Andersen doesn't get caught engaging in further
wrongdoing during this probationary period, then no charges will be
brought. The firm's criminal slate will be wiped clean.

That's how a deferred prosecution agreement works.

For first time, non-serious offenses, such agreements are a good idea.
They save prosecutorial and judicial resources and help unclog the

For serious, repeat wrongdoers like Andersen, they are a bad idea,
because they undermine justice by entrenching the double standard
between the powerful institutions of society and the less powerful
individuals, and by sending a signal that, no matter how many times the
powerful get caught, in the end, they will be let off the hook.

If you or I, individuals, engage in serious, repeated wrongdoing, we
will lose our freedom (read: prison).

But Andersen commits serious, repeated wrongdoing, and it doesn't lose
its freedom -- even though the law says it must.

Under Securities and Exchange Commission (SEC) Rule of Practice
102(e)(2) "any person convicted of a felony or a misdemeanor involving
moral turpitude shall be forthwith suspended from appearing or
practicing" before the SEC.

The SEC says this means that any accountant convicted of a felony may no
longer certify the financial statements of a public company.

So, if Andersen is convicted of a felony, it loses much of its business.

For an institution, that's the practical equivalent of prison.

Andersen would lose its freedom to operate as it wishes.

Deferred prosecution agreements were never intended for serious offenses
like the destruction of tons of documents and obstruction of justice
that Andersen is accused of.

The U.S. Attorney's Manual makes this clear when it says that a major
objective of pretrial diversion is to "save prosecutive and judicial
resources for concentration on major cases."

If the Andersen case is not a major case, then they don't exist.

In yesterday's New York Times, Kurt Eichenwald reported that such
agreements "are unusual in corporate criminal cases, but they are not

He cites as an example a 1994 case where Prudential Securities was
allowed to enter into such an agreement to resolve criminal charges that
it had defrauded investors in the sale of energy limited partnerships.

But a more relevant example is the case of Arthur Andersen itself, in
1996, when the United States Attorney in Connecticut agreed to defer
prosecution of a federal criminal investigation of Andersen's
endorsement of a misleading financial prospectus by Colonial Realty

Colonial went bankrupt in 1990. Andersen paid $10.3 million to resolve
its potential criminal liability and was placed on probation for 90
days. Andersen admitted no wrongdoing.

The bankruptcy of Colonial sunk thousands of investors in Connecticut
and around the country.

Connecticut Attorney General Richard Blumenthal, who conducted his own
investigation of Andersen, has said recently that "in Colonial, Andersen
also inexplicably destroyed an unknown number of documents and
electronic files relating to Colonial's real estate ventures."

Blumenthal's investigators found that Andersen certified as reasonable
unsupported financial projections for Colonial's Constitution Plaza
syndication and that Andersen employees had destroyed documents relating
to its dealings with Colonial.

Blumenthal said that it was subsequently determined that Andersen
accountants violated principles of accounting and that the overall
relationship between Colonial and Andersen impaired the objectivity of
Andersen accountants.

Earlier this year, Blumenthal cited other examples of what he called
"Arthur Andersen's shoddy, unethical and illegal work."

Recently, the firm settled a major fraud investigation with the
Securities and Exchange Commission concerning the services it provided
to Waste Management, paid $110 million in damages in the Sunbeam
securities fraud case, and is currently under scrutiny in litigation
resulting from its alleged role in the collapse of Boston Market.

When David Duncan, the Andersen partner in charge of auditing Enron,
pled guilty last week to obstructing justice, he gave federal
prosecutors the upper hand.

So what do the prosecutors do? If we are to believe the papers, they
agree to drop the obstruction charge against Andersen. This is a
perverse result. It is a major victory for Andersen. It makes no sense.
It sets another bad precedent.

Andersen already had at least one free bite of the apple. The firm was
given a deferred prosecution agreement in the Colonial Realty case, and
now it wants a second bite in the Enron case.

It shouldn't be given another chance.

If there is time, we make this plea to Michael Chertoff, Leslie Caldwell
and the other prosecutors in charge of this case: don't defer, don't
prefer -- prosecute Andersen and Enron to the full extent of the law.

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime
Reporter. Robert Weissman is editor of the Washington, D.C.-based
Multinational Monitor, http://www.multinationalmonitor.org. They are
co-authors of Corporate Predators: The Hunt for MegaProfits and the
Attack on Democracy (Monroe, Maine: Common Courage Press, 1999;

(c) Russell Mokhiber and Robert Weissman

This article is posted at:


8. The New York Times - Editorial Page
Disinformation on Wall Street
April 11, 2002

It just got a lot harder for Wall Street analysts to claim that they were
merely ignorant when they touted all those dubious dot-com stocks up until
the day they went bust. An affidavit submitted this week in a legal
proceeding by New York State's attorney general, Eliot Spitzer, provides
strong evidence for a more troubling explanation: that the research
departments of the big investment and brokerage firms were simply too
blinded by conflicts of interest to deliver objective analysis.

Mr. Spitzer's 10-month investigation into Wall Street's generally mediocre
performance focused on Merrill Lynch's vaunted team of Internet analysts.
What he learned from 30,000 internal e-mails obtained from Merrill is that
at the height of the dot-com mania only the clients were deluded, not the
analysts. In these e-mails, Merrill analysts routinely dismissed stocks
recommended by the firm as "a powder keg," "a piece of junk," or worse.

The attorney general's 37-page affidavit is compelling reading, and offers
longtime critics of Wall Street's research what would seem to be a smoking
gun. Merrill Lynch denies that its research was tainted, arguing that the
excerpts are taken out of context, and that it has not been given a chance
to answer the attorney general's claims in court. Merrill also says its
Internet stock recommendations always made clear that these were high-risk
investments. But that is having it both ways. Despite this general
disclaimer, not once did Merrill's Internet research team, under the
leadership of Henry Blodget, a market-bubble celebrity who is no longer with
the firm, issue a "sell" or "reduce" call on a stock, the lowest two of five
possible ratings.

Investors who trusted Merrill's integrity relied on Mr. Blodget's bullish
assessments. What they could not know, however, was that Mr. Blodget and the
other brainy analysts who held forth on CNBC and other media outlets were
often used as marketing tools to sell investment banking services to the
same companies they were appraising. The e-mails further suggest that the
supposed "Chinese Wall" separating Merrill's researchers from its bankers
was more like Swiss cheese. Indeed, according to some e-mails, the promise
of a favorable report by Mr. Blodget's team appears to have been one of the

inducements Merrill used to attract banking business from Internet
companies. Other e-mails refer to negotiations between the firm's bankers
and their corporate clients over what a stock's rating issued by the
supposedly independent analysts should be.

In one e-mail, reacting to dishonest guidance, Kirsten Campbell, a Blodget
subordinate, complained: "We are losing people money and I don't think
that's the right thing to do." In another, Mr. Blodget, whose compensation
was linked to his rainmaking power, threatened to start doing what the
outside world assumed he already was doing - calling stocks "like we see
them, no matter what the ancillary business consequences are."

Mr. Spitzer has obtained a state court order designed to force Merrill to be
more forthcoming about these "ancillary" relationships by requiring the firm
to disclose whether it has, or intends to have, a banking relationship with
any company on which it issues a research report. That improves upon the
array of modest reforms the industry has embraced in a belated effort to
restore investor confidence. Merrill itself has barred analysts from trading
in stocks they cover to address another potential area of conflict, and has
pledged to tie analysts' compensation to the accuracy of their reports.

There is nothing to suggest that Merrill's practices were singularly
egregious; Mr. Spitzer is also looking into the practices of other Wall
Street firms. He may decide to pursue criminal prosecutions or seek civil
fines. Regardless, his findings should convince federal regulators of the
need to do more to protect investors and the integrity of the nation's
financial markets.


9. startup.com: a documentary about www.govworks.com
see also review at:

As an ailing economy reduces high-flying Internet companies around the
country to bankruptcy, acclaimed documentary team Chris Hegedus, D A
Pennebaker and newcomer Jehane Noujaim take a behind-the-scenes look at the
volatile start-up phenomenon, chronicling the turbulent development of
govWorks.com, an award-winning Internet site that facilitates interaction
between local government, citizens and businesses. Turning a familiar
headline story into a high-pressure personal odyssey, Startup.com follows
the trials of partners Kaleil Isaza Tuzman and Tom Herman, best friends
since childhood, as they progress from being rookies with only a business
plan to assuming the leadership of a nationally recognized Internet company
struggling to survive an inhospitable economy.

With millions of dollars of venture capital at stake, Isaza Tuzman and
Herman wrestle with the growing pains of a new business in the fickle
Internet community, tackling technical difficulties, chartering the
unpredictable venture capitalist waters, and out-smarting copy-cat
competition. In one tense sequence, the partners receive a $17 million offer
from a venture capital firm that they must sign that day, without leaving
the office. There's only one problem: they can't locate their lawyer on the
phone. GovWorks.com even becomes the victim of sabotage when its offices are
broken into and valuable documents, outlining business and marketing
strategies, are stolen. In the end, however, none of these challenges
prepares Isaza Tuzman or Herman for their own conflict over the management
of govWorks.com., a conflict that will not only endanger their company and
their jobs, but will irrevocably alter their lifelong friendship.

Picking up where today's headlines leave off, Startup.com examines the
current troubled state of the Internet revolution, in which inflated ideals
and dreams of instant wealth have been supplanted by harsh economic
realities and broken promises. Graced with sensitive storytelling and a
dynamic, intimate cinema-verite style, the film also manages to personalize
this crisis with intensely private views of the people involved. More than
just an insider look at an industry in flux, Startup.com becomes a deft
exploration of friendship and the conflict between personal and business


10. SEC Sets Investor Summit, Invites Public Participation

Washington, DC, May 1, 2002 < Securities and Exchange Commission Chairman
Harvey L. Pitt today announced the date and format for the SEC's first-ever
Investor Summit. The summit will be held in-and webcast from-Washington,
D.C. on Friday, May 10, offering individual investors nationwide an
opportunity to ask questions and offer comments about the SEC's regulatory
agenda in the wake of recent events.

"The challenges that confront individual investors and our capital markets
did not arise overnight, but neither can they be tolerated any longer," Pitt
said. "We are moving aggressively to restore investor confidence on every
front, including corporate disclosure, auditor oversight, and analyst
recommendations. As we work with lawmakers, regulators, consumer
organizations and industry groups, there is no more important voice for us
to hear than that of the investing public."

The summit will begin with a panel discussion from 9:30 a.m. to 11:30 a.m.
moderated by Chairman Pitt. Panelists will include:

*    Joseph P. Borg, Director, Alabama Securities Commission and NASAA

*    Patricia P. Houlihan, CFP, President and CEO, Houlihan Financial
Resource Group

*    Bill Mann, Senior Investment Writer, Motley Fool

*    James G. Parkel, President-elect, AARP

*    Damon Silvers, Associate General Counsel, AFL/CIO

*    Michelle Singletary, Personal Finance Columnist, The Washington Post

During a second session from 11:45 a.m. to 1:00 p.m., Chairman Pitt, SEC
Commissioners Isaac C. Hunt and Cynthia A. Glassman, and SEC division
directors will respond to questions and comments from the public.

Investors who would like to ask questions or offer comments prior to the
summit may send an e-mail to summit {AT} sec.gov or call 1-877-404-3222.
Questions and comments can also be submitted during the event by e-mail or

The summit will take place in the William O. Douglas Room at SEC
Headquarters, 450 Fifth Street, N.W., Washington D.C. The public is invited
to attend on a first-come, first-served basis, but seating is limited. The
SEC will also offer a live audio webcast of the event on the SEC Web site
free of charge.



11. Even lamer than a busted dot-com
"F'd Companies," Philip Kaplan's obituary for online flameouts, is more
pathetic than the companies it skewers.
By Damien Cave


April 10, 2002  |  "F'd Companies" will soon be just that: FUCKED. Never
mind that author Philip Kaplan (AKA "Pud") refers to his dick more often
than Ron Jeremy; forget that his writing style and insight never surpass the
eighth grade level. Books -- like the dot-coms that Kaplan likes to
skewer -- are ultimately businesses. All authors, especially ASSMONKEY,
MONEY HUNGRY AUTHORS LIKE KAPLAN, aim to attract customers,
dollars or both. And in this case, Kaplan's enterprise will undoubtedly
flame out, go belly up, eat its own ass. Whatever you want to call it,
"F'd Companies" will soon disappear.

Maybe I'm just another idiot, like Kaplan himself claims to be (he also
seems to be a chronic masturbator, judging from the numerous references to
spanking the monkey), but I just don't see how this book will ever become
anything but yet another dot-com joke.

Here's why:

1) Price: Kaplan's $18 book is nothing more than a compendium of 150 or so
companies: their names, how much they got in venture funding and why they
failed. But here's a news flash: All of the information is available
elsewhere for free. Not only can readers go to one of Kaplan's 17 sources,
which he lists at the end of the book, but they can also go to his own site.
There, they'll find everything that's in the book, almost all of it for

2) Competition: "Dot-Con," "dot.bomb," "Dot-Com and Beyond," "Business  {AT}  the
Speed of the Stupid" -- these are just a few of the books that have appeared
on bookstore shelves over the past few months. All of them attempt to
explain why the dot-coms failed. All of them purport to be insightful and
sometimes humorous takes on the economic fuckfest called the high-tech
bubble. In other words, they all tread over Kaplan's ground. In such a
crowded field, "F'd Companies" has about as much chance of standing out as a
San Francisco dot-com party circa 1999. The boom for books on the dot-com
bust is over; "F'd Companies" will be just another casualty.

3) Quality: Let's face it -- the book sucks. I am fully and completely
within Kaplan's target audience. I'm a 27-year-old male who enjoys heavy
metal. I work for a dot-com that has been featured on Kaplan's site. I like
dirty humor. I even, occasionally, find masturbation jokes funny.

But I'm not amused by Kaplan's attempted literary antics. It's not just that
he's misogynistic and a terrible writer. It's also that Kaplan's jokes are
about as flaccid as an old man's penis, while his big insight -- hey, these
guys spent too much money, too fast! -- seems to be, uh, SCREAMINGLY
OBVIOUS. Even worse, he has the audacity to dedicate his book to laid-off
dot-commers -- his "extended family" -- even as he is attempting to
"monetize," as dot-commers used to say, their failures. Does he really think
that no one will notice the hypocrisy? Does he really think that his attempt
to become a money-sucking parasite distinguishes him from any of the losers
whose tales of woe he chronicles?

11 comments in the Happy Fun Slander Corner

HarryParatestes: Whatever. Damien Cave's just jealous because Kaplan is
making more money than he is and got a publishing deal. Salon is more fucked
than this book will ever be. Go suck some hog, Cave.

DickBeNimbleDickBeQuick: No way, Pud's time has come and gone. I'm tired of
his shtick, his whole "if I'm self-deprecating, no one will notice that I'm
an asshole" game. He's made a career out of chronicling others' failures
while exhibiting the exact characteristics he claims to be fighting against.
Try to find a dot-com CEO who's more arrogant and sure of his
overimportance; I dare ya. You won't be able to do it.

RumpRoasted: Who cares about whether Kaplan sounds like a frat boy who never
gets laid? His main problem is a lack of perspective. He's the same age as
all the khaki-clad dot-com CEOs who thought buzz meant more than customers,
and it shows. The dot-com bubble, in Kaplan's gaze, looks like the first
speculative debacle in economic history. He seems to think the colossal
spike-and-dive was unique, but history says otherwise. This kind of thing
happens all the time. Tulips, radio, the railroads, television -- just about
every time something new comes along, Wall Street pumps the product with
hype, sucks out some cash and lets the deflated market tumble.

DingleBerryPie: Exactly. Both Cave and Kaplan shoot shy of the core target.
They end up demonizing the dot-com bit players -- a group to which Kaplan
belongs, no matter what he says -- while ignoring the real Ponzis of this
ridiculous scheme: Wall Street. Never mind the yellow-bellied eunuch CEOs
who used e-mail to fire their workers. The game was rigged from the start.
Analysts gave clients financial blow jobs, I-bankers brought bogus companies
public, institutional investors cashed out. End of story, pass the Playboy.
(Anybody know when that "Ladies of Enron" issue comes out?)

AmandaHugginkiss: My gripe has always been with the venture capitalists.
Kaplan at least individually identifies how much money these guys gave to
specific companies, and at first, their idiocy pissed me off. Who gave these
guys the right to be mini-Gatsbys? But then I remembered how much they lost
and just the thought of them having to sell their Boxters made me want to
pee with laughter. Wee-wee-wee-wee, all the way home.

IvanaGedvasted: I think we should thank the VCs. They indirectly bought me
more drinks than any of my friends and gave me the chance to see Elvis
Costello in concert, for free, while I ate a nice piece of unagi. In
college, I got to drink with my parent's money. But when I moved to San
Francisco, I got drunk off the generosity of complete strangers who thought
they might want to hire me. Stupid, stupid, stupid for them -- but a lot of
fun for me.

BenDover: Yeah, but those parties were so lame. The worst part of the
dot-com boom -- the part no one wants to talk about, Kaplan and Cave
included -- is that it was boring. In the '20s, people drank bathtub gin and
ran the risk of getting arrested for boozing it up. The '50s boom had the
sex-and-martini-loving Rat Pack on one hand, and the mad-jazz Beats on the
other. Even the '70s had pills, disco and casual sex and the '80s had
cocaine high-rollers who never slept. What did we get? Mediocre parties with
bad D.J.s, blocks of cheese and crowds that thought they were CRAZY for
actually dancing to techno in their button-down shirts. Blech.

PlatoTheMasses: Let's bring this back to the topic at hand: dot-com
flameouts and assholes who think they have the right to pontificate about
their demise. I'm counting you all in that crowd because this has begun to
feel like a giant circle-jerk. Hindsight's 20/20 and it's easy to kick
anything that's falling down, but listen up, Jackasses, the dot-com boom was
about more than money and parties. There were a lot of people who
justifiably believed that they were taking part in something bigger than
themselves. Sure, most of them were deluded, but not all. Do a search for
"Middle East" on Google and tell me that the world isn't more informed
because of the Web and the dot-com boom that helped it grow. Wander around
at eBay and tell me that brick-and-mortar companies will always beat
Internet competitors. Or look at the digital entertainment that's now
available -- the music, the movies, even the porn -- then tell me that the
world of creativity won't be changed forever by the addition of online
distribution. And that's because all the money, all the energy and all the
bullshit managed to at least create new levels of innovation and new
products that are valuable. You can't have the good without the bad;
widespread Internet adoption wouldn't exist without the dot-com boom. In
other words, the same tools that companies like Boo used to make fools of
themselves allow the rest of us to live better lives.

HarryParatestes: Fuck you, you fucking fuck. Do you even have a penis?

IvanaGedVasted: If Pud was here, he'd tear you a new asshole.

HarryParatestes: Exactly. And I wish he was here, you fudgepacking
teabagger. Pud's a hero, a real man, the only one who makes sense of the
dot-com world, the only one worth listening to. Me and Pud will keep
fighting the good fight!


12. Merrill Is Ordered to Reform Way
Its Analysts Rate Corporate Clients
April 9, 2002

The backlash against conflicts of interest among Wall Street research
analysts took a new turn Monday, as the New York State attorney
general won a court order forcing MerrillLynch & Co. to overhaul its
research on companies that are also investment-banking clients.

The court order obtained by New York's Eliot Spitzer came after a
10-month investigation that focused on calls by Merrill's Internet
research group, led by former star analyst Henry Blodget, who recently
left the firm after pulling in a 2001 paycheck of $12 million.

Under the terms of the order, whose implementation was delayed by
three days after Merrill won a temporary stay from New York State
Supreme Court judge Martin Schoenfeld, Merrill in its research reports
must disclose to investors whether the firm has or intends to have an
investment-banking relationship with a corporate client. The firm must
make other disclosures as well, such as posting in research reports
how many buy-and-sell recommendations the firm has in a particular
sector of coverage.

Conflicts between a firm's analysts and investment bankers -- who long
have known that negative research can hurt their chances of winning
corporate-finance work -- have drawn intense scrutiny recently in the
wake of the meltdown in technology stocks. Many prominent research
analysts, including Mr. Blodget, remained wildly optimistic on stocks,
particularly tech shares, long after those stocks crashed and saddled
investors with large losses.

Merrill, for its part, has been taking steps to change the way it
provides research to investors for some time. In the summer, for
instance, Merrill said it would bar its analysts from buying stock in
companies they cover, making it the first major securities firm to do

But the announcement by the attorney general's office is a major
setback for Merrill, and Mr. Blodget, who has been the focus of
criticism for his overly optimistic research calls during the bubble
in technology stocks. The office said it has uncovered evidence that
Merrill's stock ratings were "biased," and were used to win
investment-banking business instead of serving the needs of small
investors. In its documents, the office said it had uncovered a series
of e-mails, some from Mr. Blodget himself, which showed that analysts
often shared doubts about certain stocks, even as they continued to
support the stock in public.

The attorney general's office said that even though Merrill's Internet
group had neutral ratings on stocks, e-mails show that the analysts
were more pessimistic in private, saying that certain stocks were
"going a lot lower," or describing a company as "crap," or a "dog." At
the same time, Mr. Blodget conceded that the Internet group had never
issued a "reduce" or "sell" recommendation despite making these
private comments, according to documents released by the attorney
general's office. (A Merrill spokesman said those comments were taken
out of context.)

In an affidavit, the attorney general's office cited the
once-highflying technology stock InfoSpace Inc., which it said was on
Merrill's "Favored 15" list of stocks the firm was recommending. The
state office said in documents that InfoSpace remained on the list
from at least August 2000 until Dec. 5, 2000, even though Mr. Blodget
as early as July 2000 said the "stock was a 'powder keg' and that
'many institutions' had raised 'bad smell comments' about it."

The state office said Mr. Blodget was unaware that the stock, which he
had been covering, was on the favored list. After a complaint by a
broker in October 2002, Mr. Blodget contacted another Merrill analyst
and said in an e-mail "can we please reset this stupid price target
and rip this piece of junk off whatever list it's on. If you have to
downgrade it, downgrade it." The state office, however, said InfoSpace
wasn't removed from the list until December. Merrill said the e-mails
were "taken out of context." InfoSpace declined to comment.

"Certainly what we have seen is very, very troubling," Mr. Spitzer
said in an interview. "This is a fundamental deception of the public
to place buy recommendations on stocks that the firm knew weren't good
investments that were triggered by an ulterior motive of helping the
company get investment banking clients."

Mr. Spitzer said the investigation continues and has expanded to other
firms. He said the office could ultimately bring criminal charges
against any and all of the parties being examined. "There's a whole
range of sanctions on the table," Mr. Spitzer said in a statement. "We
have to complete our investigation and that will take months to get
depositions and documents."

Mr. Blodget referred all questions to Merrill Lynch, which in a
statement said: "There is no basis for the allegations" and that the
firm is "confident that a fair review of the facts will show that
Merrill Lynch has conducted its research with independence and
integrity. We have been a leader in practices to assure the
independence of our highly regarded research group."

The uproar over analysts' conflicts and the influence of possible
investment-banking business intensified after the bankruptcy-filing of
Enron Corp. put a spotlight on the Wall Street firms whose analysts
recommended Enron even after the company's problems became known. The
Big Board and NASD proposals would require analysts to disclose their
firm's banking relationships in their reports. A gaping loophole,
critics contend, is the failure of the proposal to ban tying analysts'
compensation to investment-banking fees.

But momentum for such changes could grow in the aftermath of the
attorney general's report. The attorney general said Merrill's
investment-banking department was "involved in criticizing and
editing" the Internet group's research reports for "client companies."
The office said that "in sworn testimony" Mr. Blodget conceded that
investment bankers "had veto power over his initiating coverage" of a
stock called GoTo.com, which he ultimately downgraded after Merrill
failed to win an investment-banking assignment.

A Merrill spokesman said the attorney general's contention conflicts
with Merrill's understanding of the testimony. The spokesman also said
the downgrade wasn't tied to losing the investment-banking
business. He added that the attorney general's office "has ignored
testimony which showed that the analysts had no advanced knowledge of
any pending investment banking" deal.



      "The days of investing in Web sites we love are over."

          Salomon Smith Barney analyst Lanny Baker, on Google's huge
          consumer fan base and poor IPO prospects, The New York Times,
          8 April 2002


Ditherati appears daily on weekdays. An archive is
online at http://www.ditherati.com/archive/


14. My Arthur Anderson Story
By bikemessenger

I was a bike messenger in San Francisco for a few years when I was going to
college. Bike messengers come from all walks of life but you I was a bike
messenger in San Francisco for a few years when I was going to college. Bike
messengers come from all walks of life but you know the typical bike
messenger: punked out, tattos on the face and neck, dreadlocks, dirty
clothes, all that. know the typical bike messenger: punked out, tattos on
the face and neck, dreadlocks, dirty clothes, all that.

I bathed, wore clean clothes, normal haircut, no tattos, and was required by
my company to be "presentable" since I'd be walking around offices mostly in
the financial district. I did drink the occasional 24. oz of Olde English
while on duty but that was one of the few benefits associated with the job.

Anyway, most people in the financial district treat bike messengers like
shit, and my favorite story is the time I had to deliver a package to my
brother - who was VP of Sales at a software company - and the secretary
treated me like I had crapped my pants and it was leaking onto her desk. She
told me to "just drop the box and go" while she was talking on the phone. I
started to walk torwards my brothers office and the secretary just freaked
out and screamed that messengers "aren't allowed near the offices", since
we'd contaminate the tiny cubicles with our funk.

I told her I was going to see my brother and she changed her tone and told
me - lower class service worker to even lowlier class service worker - that
my brother was one of the only people there that was nice to the "staff".

The younger dotcom people south or market were cool, and the women were even
cooler since the guys were all nerds.

But the absolute worst was Arthur Anderson. The runs paid well since they
rushed everything at 15 minutes or less for $35 -$50 per tag, half going to
me. But the people were just assholes. Every package would go the same
floor, where you'd see this big menacing steel security door. You'd press a
buzzer, and this ebonics speaking dude would mumble some shit, and tell you
to just leave it outside the door. You'd come back with another package two
hours later and the same package would be sitting on the floor, with it's
bright orange RUSH sticker and "sensitive information" tag.

The employees would get on the elavator and tell each other how rich they
were, and how they got this account and that account, and how they went to
some exotic locale over the weekend ("So how was your weekend? Great,
visited a girlfriend in London,") They also liked to close elavator doors in
your face, since they hated sharing the elavator with the unwashed masses -
I would shellac my armpits with spray anti-perspirant AND deoderant, and
they still treated me like a leper, as if some infected piece of skin was
going to rub on them and ruin their expensive suits.

The men also talked about "fucking the office ho", and I think they were
more at Anderson than at any other company I visited, or at least the men
talked about them more.

When I see Arthur Anderson employees on the news talking about how they are
"innocent victims" and "where is the justice?" I just laugh. Anderson
corporate culture is corrupt, pure and simple. They are all the same - money
grubbing, arrogant, ivy league, immoral assholes. Glorified money
launderers, they are the type of company that would have worked for Hitler,
calculating how many pounds of gold teeth were melted down into gold bricks.

Now I have a decent job in San Francisco and I'm always nice to messengers -
even when they smell funky, and have tatoos of snakes on their necks.


14. Telecom's Fiber Pipe Dream


April 1 2002


 The world's phone calls, faxes and e-mails zip through strands of glass
 no thicker than a human hair, riding across countries and continents on
 pulses of multicolored light.

 The strands are bundled in cables that run beneath city streets, through
 mountain passes and under the seas.

 The cables were laid by a band of upstart companies that spent $50
 billion or more in the last few years to wire the planet. These massive
 networks will serve the public for years to come, delivering the
 electronic goods of the Digital Age.

 But the companies that built them are not celebrating. Many are in
 financial ruin. The recent collapses of Global Crossing Ltd. and other
 communications firms have roiled financial markets and cost investors and
 employees tens of billions of dollars.

 How did such a triumph of engineering leave so much corporate wreckage?

 News reports of Global Crossing's meltdown have dwelt on accounting
 sleight of hand and extravagant executive pay. But what actually drove
 the company and others like it into the ground was an epic

 These upstarts bet that if they built communications networks with far
 more capacity, or bandwidth, than had ever been available before,
 customers would rush to use them.

 The network builders employed new technology that crammed much more data
 onto each strand of glass. This enabled them to slash prices for
 long-distance data transmission well below the rates charged by
 established networks, such as those of AT&T Corp. and British Telecom,
 that used older equipment.

 The newcomers believed that the combination of low prices and abundant
 bandwidth would unleash a frenzy of activity on the Internet. Consumers
 and businesses would pay for all kinds of services that previously had
 been too expensive. People would watch Web movie channels on their TV
 sets. Doctors would diagnose illnesses via the Internet. Corporations
 would hold video conferences with employees around the world.

 The problem was that too many companies had the same dream, and they
 built too many digital toll roads to the same destinations. The prices
 commanded by long-distance networks did drop--but much more steeply than
 the newcomers expected. And the demand for their services did rise--but
 not nearly as much as they had banked on.

 As a result, many of the upstarts couldn't bring in enough cash to pay
 interest on the money they borrowed to lay all that cable.

 Their plight is a textbook example of the boom-and-bust cycle of
 high-tech capitalism. It illustrates how technological innovation,
 plowing relentlessly forward, can make companies and then break them.

 The financial outlook is not universally bleak--many network operators
 remain healthy, and some regions are not overloaded with fiber. But on
 many of the routes that drew the heaviest investment, such as those
 between the United States and Europe, the bandwidth glut is likely to
 remain for five years or more.

 "People have laid huge amounts of fiber in the ground," said Internet
 analyst Tony Marson of Probe Research Inc., "and there is a distinct
 possibility that quite a lot of that will never actually see any

      Explosion of Internet Traffic Fueled Demand

 If any one person inspired the burst of network building, it would be an
 English computer scientist named Tim Berners-Lee.

 The expert in storing and retrieving data invented the World Wide Web in
 1989 while working at a European nuclear research laboratory.

 Before then, Internet users had to type arcane computer commands to
 search for and view files on the network. Berners-Lee devised a way to
 present documents, pictures and graphics on electronic pages that could
 be retrieved with the click of a mouse.

 The new technique transformed the Internet from a hard-to-use research
 tool into a communications medium for the masses.

 Two developments in the early 1990s aided that transformation. First, in
 1992 Congress lifted the ban on commercial uses of the Net. Then, in 1993
 and late 1994, the first easy-to-use browser programs were released,
 simplifying the task of viewing or building a Web site.

 Up to that point, Internet use had doubled every year or so. Afterward,
 traffic exploded, increasing tenfold in 1995 and again in 1996, according
 to researchers at AT&T Labs.

 "People thought it could double every quarter forever," said analyst
 Paras Bhargava of BMO Nesbitt Burns, a Canadian investment bank.

 As people and businesses began buying, selling and chatting online by the
 millions, it seemed that no amount of Internet bandwidth would be enough.

 "All these [dot-com] companies were cropping up, it seemed weekly, and
 there was no end to that in sight," said Glenn Jasper of Ciena Corp., a
 telecom equipment manufacturer in Maryland. "So the conventional wisdom
 was we've got to grow the capacity of our networks not for the traffic
 that's out there now or even next week but for a year from now."

 For years, those networks had been operated in the U.S. by a handful of
 giant phone companies and abroad by government monopolies. These
 companies relied on a small number of equipment suppliers, such as AT&T's
 Western Electric subsidiary.

 They lost their chokehold on the industry, however, just as Web traffic
 was exploding. Governments around the world started prying open their
 telecommunications markets to competition. At the same time, advancing
 technology gave birth to a litter of new equipment suppliers that
 specialized in fiber-optic gear.

 Long frozen out of the telecommunications business, investors suddenly
 had a chance in the mid-to-late 1990s to crash the party. Venture
 capitalists opened their checkbooks to bankroll new networks and
 equipment companies. Investors jumped on board as soon as shares were
 offered to the public.

 "There was a lot of money available," said Todd Brooks, a general partner
 at Mayfield Funds, a venture capital firm in Menlo Park. "You had
 billion-dollar IPOs, and the gold rush mentality set it."

 Before long, engineers were stringing glass around the globe--a "new
 economy" version of the race to build railroads across America in the
 19th century.

 Global Crossing and other companies tunneled under streets, carved
 trenches and sent ships across the oceans, laying hundreds of thousands
 of miles of fiber-optic cable. Many of the network builders were so sure
 of the growth to come that they packed the cables with extra fibers that
 were left inactive--"dark," in industry vernacular--for future use.

 But all the while, technology was advancing in a way that would delay the
 need for those extra fibers--and, paradoxically, lure more competitors
 into the fray.

 Fiber-optic networks use lasers to transmit light in split-second
 flashes. Think of them as tiny, high-speed versions of the blinking
 semaphore signals that ships use to communicate at sea.

 Equipment makers improved that technology in two ways: by speeding up the
 flashes of light and by using different colors to send multiple signals
 at the same time over a single fiber. These innovations greatly expanded
 the capacity of fiber-optic networks.

 Statistics illustrate the magnitude of the change.

 In 1994, the entire global communications network could transmit about 1
 trillion pieces of data a second, said economist, author and technology
 pundit George Gilder.

 Today, a single fiber strand has more than 1 1/2 times that capacity if
 it uses the best optical equipment on the market.

 In the U.S., 10 of the largest networks had a total of about 40 such
 fiber strands in service in 2000, according to a study by Probe Research,
 based in Cedar Knolls, N.J. The networks also had 570 dark fibers waiting
 in reserve. And since then, two emerging national data networks, Touch
 America Inc. and Velocita Corp., have added more than 100 fibers to the

 The increase in bandwidth is even more dramatic between the U.S. and the
 rest of the world. For example, the capacity of networks linking the
 United States and Europe has multiplied nearly 80 times since 1997, said
 Richard Elliott, co-founder of the Band-X technology research group in

 By the end of 2002, capacity is expected to nearly double again--and
 that's just counting the fibers that are in service, not those left dark
 to accommodate hoped-for growth.

      Marketing to Businesses

 A catalyst in this explosion of capacity was Global Crossing. Unlike AT&T
 and other established long-distance companies, Global Crossing showed
 little interest in consumers' phone calls. Instead, company executives
 wanted to sell bandwidth wholesale to other long-distance companies and
 corporations, which would use it for their own communications needs.

 Global Crossing's founder was financier Gary Winnick, a onetime furniture
 salesman and investment banker who worked alongside junk-bond king
 Michael Milken in Beverly Hills. Trumpeting the opportunities presented
 by telecommunications deregulation and fiber optics, Winnick raised $750
 million in 70 days in 1997 for the first leg of his network: an
 8,700-mile cable from the United States to Britain, Germany and the

 No single company had ever built an undersea cable with private
 investors' money before. But when Global Crossing quickly found buyers
 for all that new capacity, "any doubts about the need were quieted," said
 Elliott of Band-X.

 Winnick soon had plenty of company on the fund-raising circuit. A host of
 other entrepreneurs dazzled investors with charts showing the
 skyrocketing growth of the Internet and the plummeting cost of doing

 For example, James Q. Crowe, chief executive of Colorado-based Level 3,
 boasted that his company's state-of-the-art fiber network would undercut
 its older rivals' prices by 15% to 20%. Crowe raised a reported $6.5
 billion before Level 3 had activated its first strand of fiber.

 "There were a lot of companies sort of going at this in parallel," said
 Dave Passmore, research director at Burton Group, a network analysis
 firm. "They all got in when they viewed this as an unexploited market."

 Ron Kline, an analyst for the telecommunications research firm RHK Inc.
 in South San Francisco, said it wasn't necessarily wrong for a new
 carrier to think it could win the battle for customers. "The problem was
 there were too many people thinking about it."

 The greatest advantage went to the carrier with the newest technology and
 highest capacity. It spent less to push data through its network than its
 competitors did, which meant it could charge lower prices.

 So companies kept building networks even as the supply of bandwidth grew
 well beyond demand. And as technology kept improving, the upstarts soon
 had to compete with newer, more advanced players. No network could hold
 on to its advantage for long.

 "In some bizarre movie about the telecom industry, you would have guys
 from the carriers going out and killing guys in the labs to prevent them
 from coming up with new technologies," said Ron Banaszek of TFS Telecom,
 a Swiss consulting and investment firm for communications and energy

 Today, about 16 advanced transcontinental fiber networks are competing in
 the U.S. long-distance business, said Larry Roberts of Caspian Networks
 in San Jose, which supplies communications equipment. That's three times
 as many as there were two years ago.

 The increase in capacity and competition drove prices to the floor.

 Wholesalers such as Global Crossing typically sell companies a certain
 amount of capacity from one city to the next--for example, enough to
 transmit 155 million pieces of data a second from New York to London. A
 bank with offices in those two cities might use that capacity to connect
 its computers.

 In 1997, that capacity cost about $14 million upfront, plus annual fees
 of $250,000 to $380,000, said Elliott of Band-X. Today, the same
 bandwidth could be bought for $350,000 upfront and $15,000 a year.

      Industry Forecasts Were Too High

 So what happened to the burgeoning demand that was supposed to be the
 industry's lifeblood?

 The extreme growth rates in Internet traffic seen in 1995 and 1996 were
 just a blip, reflecting the advent of Web browsers, said Andrew Odlyzko,
 director of the Digital Technology Center at the University of Minnesota.
 Since then, he said, the amount of data flowing over the Net has reverted
 to its previous rate of increase, roughly doubling every year.

 That's a lot of bits to move--but not nearly enough to fill the networks
 built during the boom.

 One reason demand failed to mushroom as expected was the shortage of
 bandwidth in local fiber-optic networks. Before consumers start
 downloading symphonies or watching pay-per-view events online, they need
 a high-speed connection to the Internet. But in the U.S., fewer than 10%
 of all homes have one.

 There may be a data fire hose running from coast to coast, but the
 typical consumer is still connecting through a straw.

 Many consumers are unwilling to pay the extra cost of a high-speed line
 because, in their view, the Internet is not compelling or important
 enough to justify it. The entertainment companies that could make the Net
 more appealing to consumers, including most movie studios and TV
 networks, are staying on the sidelines until more homes have high-speed

 Some analysts and equipment makers argue that demand is growing faster
 than the prevailing estimates indicate, increasing 2 1/2 to three times a
 year on the main U.S. Internet pipelines. They argue that networks are
 getting so jammed in some areas that long-distance companies will be
 ordering more within a few months to a year.

 But even those growth estimates fall well short of the giddy projections
 of a few years ago. And the situation may get worse before it gets
 better, if Bankruptcy Court allows Global Crossing and other insolvent
 carriers to write off their debt and stay in service.

 "That will launch a whole 'nother round of price wars that will cause
 pain for everybody in the industry," said Russ McGuire, chief strategy
 officer for telecommunications consultant TeleChoice Inc. "It will get
 worse for everyone, and in the end, Global Crossing will still go away."

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