Sunday Musings: Investment Scandals Du Jour

It was quite challenging this week to keep up with all the potential scandals brewing in the Wall Street community. There is no need for you to go out this weekend and spend money to rent an action movie when all you need to do is follow the business pages of your local newspaper. It’s free!

Looks like Merrill Lynch’s bull (no pun intended) is being morphed into a bunny, if you follow their story lines. There is the departure of CEO Stan O’Neil, who is now the fall guy for Merrill’s involvement in the mortgage market meltdown. Well, having to write off some $8.4 billion for the quarter is a little too much in order to ask for forgiveness to keep a job. Adding to that annoyance was Stan’s behind the back (without board approval) contacting of Wachovia to discuss a possible merger.

But don’t feel too bad for Stan, he’s the man when it comes to cutting personal deals. According to the Wall Street Journal, he won’t get a severance or a bonus (Really? I wonder why?), but he’ll take the proud walk with $161 million earned from various pension plans and stock grants. Should that not suffice, he’s eligible for a pension worth $24.5 million that could provide annual payments of up to $2 million. There’s also a little pocket change left in that deferred compensation plan of some $4.8 million.

If I were him, I would have left on my own some time ago, especially since the SEC is now alleging that Merrill tried to do some deals with hedge funds to delay having to report huge write-downs on mortgage backed securities. Translation: Hiding investment losses. Again, this is only an allegation, but I can’t help but catch the faint smell of Enron…

Then there was the story of WaMu (Washington Mutual) finding itself on the receiving end of a lawsuit filed by New York Attorney General Andrew Cuomo charging that eAppraisalIT colluded with WaMu to inflate values of homes nationwide. If this holds true, you will see an entire different side of the Subprime pig making its presence known. Depending on how far reaching this allegation is, it could add a whole new dimension to the mortgage and real estate debacle.

Not to be outdone, the stock of the mother of all banks, Citigroup, has been downgraded on the possibility of a dividend suspension or possible sale of some assets due to write-downs from, you guessed it, the Subprime crisis. Citigroup’s board has called for an emergency session this weekend to discuss whatever it is that they’re not sure about.

In my view, it is one thing to lose money with an investment, that is part of investing; but it’s quiet another not knowing what exposure your various investment vehicles have or what they might be worth. Even if they have become worthless, not knowing and not going public with it, is inexcusable.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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