In the wake of last summer’s Enron and WorldCom disasters and other corporate malfeasance along the way, the New York Stock Exchange (NYSE) and the Securities and Exchange Commission (SEC) have been busy trying to restore investors’ confidence. Their reach has extended to Charlottesville, where SNL Financial, a publishing company covering various financial services sectors, has had to think about adjusting its own way of doing business to appease the Feds. The NYSE and the SEC are trying to implement new rules to manage potential conflicts of interest that may hurt investors. Essentially, regulators decided that an equity analyst shouldn’t be allowed to freely discuss a company’s stock without mentioning that his or her employer also does investment banking or other business with that company.
In November, the NYSE proposed that when journalists use information from analysts, their publications must disclose any conflicts those analysts might have. For example, a paper could no longer report that Analyst X is recommending Acme Donuts, without mentioning that Analyst X’s employer is the investment banker for Acme Donuts. In addition, if a publication doesn’t comply, then the NYSE argued the analysts shouldn’t talk to reporters.
In Charlottesville, SNL Financial, which was founded in 1987 by Reid Nagle after he left his post as head money man for disgraced Wall Street high-roller Ivan Boesky, covers the banking, financial services, insurance, real estate and energy industries through daily electronic and print newsletters. Each newsletter has 200 to 300 subscribers. SNL’s subscribers tend to be professionals, including portfolio managers, investment bankers and stock analysts. SNL Publisher Alan Zimmerman recently spoke to C-VILLE about the new rule.
“I don’t think it helps us out,” he says. “I don’t think it helps the public out, I don’t think it helps Wall Street out, I don’t think it helps anybody out.” Given that SNL’s reporters and researchers talk to analysts every day, he has reason to be concerned. Many column inches in SNL’s newsletters are devoted to summaries of analysts’ reports on the industries that SNL covers.
Zimmerman says the NYSE has no grounds to tell a publication what to print. But, the NYSE has the ear of the SEC, which can regulate analyst behavior and make financial rulings. The NYSE can also require analysts who work with its member firms not to speak to reporters who don’t comply, thereby threatening the ability of a financial news organization to function. “In essence, they’re saying to a business like mine ‘Do what we tell you or we’ll cut off your sources of information,’” Zimmerman says.
In truth, SNL’s readers probably don’t require such disclosures. “Our audience tends to be pretty sophisticated,” says Zimmerman. “I would say they come into it knowing that every analyst is hopelessly conflicted.”
And then there’s the problem of checking compliance and defining what constitutes a disclosure. Would, for instance, a blanket statement suffice? Further, even if an analyst doesn’t work with a company he is discussing, he might be touting a stock to try and drum up future business. As Zimmerman says, “The fact of the matter is that every investment banker on Wall Street is always trying to get business, and the issue isn’t really the business that they’ve done but the business that they’re trying to get.”
On the one hand, then, there’s the issue of handing the disclosure problem over to reporters. There’s also the pesky matter of the Constitution and the First Amendment—rules limiting who the press can talk to and how sources should be identified probably won’t go unchallenged. So far, the NYSE doesn’t seem to see it that way. Edward A. Kwalwasser, a group executive vice president for the exchange, told The New York Times it was a non-issue: “We’re not saying what you can print. We’re just saying what our members have to do.”
Zimmerman disagrees: “I think that when the NYSE formulated this rule they really weren’t thinking about the Constitution or the First Amendment or how this would land on the ears of journalists in the United States.” Instead, says Zimmerman, the NYSE has suggested the rule in order to restore its own credibility. However, if the exchange keeps the rule and the SEC follows its lead, judges and lawyers will be left to decide its constitutionality.
If it gets to that point, Zimmerman foresees only one conclusion: “I would say it’s a no-brainer for a court to throw it out.”—Allison Knab
No-jet set
Disgraced CEOs, including an Albemarle resident, scrimp
On Sunday, December 15, in its Money & Business section, The New York Times chronicled how far many of America’s former top executives have fallen since it was discovered that they were robbing middle-class piggy banks to gild their own lairs. For goodness sakes, some of these guys have been reduced to flying coach. Coach!
Among the disgraced and downtrodden is Mark H. Swartz, sometime Albemarle resident and onetime chief financial officer of Tyco International, the conglomerate and former investors’ darling from which Swartz is accused of pilfering more than $600 million. According to the Times, Swartz, who was indicted in the spring and is free on $5 million bail awaiting a New York State trial in June, must limit his travels to Florida, where he maintains his primary residence, and New York City, where he meets with his lawyers.
Some, of course, would find that consequence fitting for a guy who purportedly spent shareholders’ hard-earned cash on building up his personal fortune and paying multiple mortgages. In fact, there might be those who think things could be a tad tougher for the former Tyco titan, whose company, as recently as January 8, 2001, was lauded by Business Week magazine for returning value to shareholders and adopting a management credo, which, at that time, was lauded for the now-laughable assertion that it “enforces accountability by setting tough goals.”
Also indicted with Swartz and similarly facing a cut-back in lifestyle is former Tyco Chairman and Chief Executive Officer L. Dennis Kozlowski , who also awaits a New York State trial, set for June 1. Kozlowski has to get a judge’s OK before even paying his electricity bill. The Times revealed that those bills alone in November totaled more than $2,000 for three of Kozlowski’s homes. In Nantucket, Kozlowski racked up $726 in electric charges; the figures were $1,047 for his Florida estate and $268 in Colorado.
Swartz’s and Kozlowski’s living expenses could decline considerably if prosecutors succeed in proving that they were at the helm of what the New York indictment described as a “criminal enterprise,” which was spun off from Tyco to divert funds and secretly sell millions of shares of the parent stock without attracting regulators’ notice. Further, prosecutors charge that Swartz and other defendants “provided incomplete and misleading information and omitted to give truthful information and necessary legal advice to the Board [of Tyco]…” Meanwhile, Swartz and his cronies “used their positions in the company to take corporate funds for themselves and their friends without permission or authority, and were able to conceal thefts and other wrongdoing by corrupting key employees…with lucrative payments to influence their behavior.”
The Associated Press reported on November 21, however, that “logistical problems” are plaguing investigations into aspects of the Tyco case. Translated, could that mean that Swartz might get off by dint of sufficient evidence? Even worse, might it mean that if Swartz avoids time in the slammer, he’ll be free to spend more time in the Blue Ridge?—Cathryn Harding
Art and violence
Rape victims break silence with creativity
Around noon on Friday, December 13, when the rain that had been falling all morning turned to ice, Stephanie Snell and Jessica Cochran gave up hope that many people would attend a vigil for victims of sexual violence held that day at the Thomas Jefferson Memorial Church on Rugby Road. But familiar with the realities of sexual assault, Snell and Cochran probably didn’t expect a packed house anyway, regardless of the weather.
Snell and Cochran both work for the Sexual Assault Resource Agency (SARA), which sponsored the 12-hour vigil; they say silence hangs like clouds around the true nature of sexual crimes in Charlottesville.
“I think there’s a combination of taboos,” says Cochran, a training coordinator at SARA. “Sex is hard enough for people to talk about. Then if there’s violence involved, it’s even harder.”
The vast majority of sexual violence is perpetrated by victims’ acquaintances or even family members, say experts at SARA. The tangled personal relationships involved in date rapes and incest mean that most sexual crimes are not reported to police. The atmosphere of secret and shame surrounding sexual assault means that victims are often condemned to suffer in silence, says Snell.
“When this happens, people need to know that it’s not right, it’s not their fault, and that they can get out of it,” Snell says. “But because of the topic, parents don’t talk to their kids about it. They talk about smoking and drugs, but not what to do if your boyfriend hits you.”
SARA’s vigil, held in one of the church’s side rooms, featured posters created by sexual assault victims.“We encourage people to do whatever they need to feel safe,” says Cochran. “Sometimes it helps to have a creative outlet.”
One 4-foot poster featured a blue watercolor god’s eye inscribed with a hand-written poem about incest by a woman doing time for murder whose words captured the many conflicting emotions enfolding sexual assault.
“I was the dirty girl and she was the cleaning brush,” it read. “I didn’t know how to make it stop. I wasn’t sure I wanted it to stop. I hated her. She was my best lover.”––John Borgmeyer
“This land is my land”
Vets oppose the City property grab
A rusting howitzer guards the Veterans of Foreign Wars Post 1827 on River Road. Above the building an American flag is flying, along with a black banner reading “POW-MIA You Are Not Forgotten.” Inside, there’s a dark hall with a low ceiling, like an empty cafeteria. Nashville singers dominate the Rock-Ola jukebox in the corner; a pair of pool tables are covered with green plywood boards striped for ping-pong; a Christmas tree blinks on the corner of a tiny stage. Framed patches and ribbons from military divisions like the 101st Airborne and the 24th Infantry hang on the back wall. The VFW has situated its reverence for all things military along the Rivanna River since 1953, when it purchased these nine acres of land.
Now the City wants to disturb the shrine by building improvements to the Rivanna Greenbelt trail network right on VFW property. And the veterans are preparing to wage battle in defense of their turf.
In November, City Attorney Craig Brown sent the group’s quartermaster Ed Ryan a letter with the following proposal: The City would pay VFW the assessed value of $4,565 for 138,000 square feet of riverside land to build a trail and parking lot. Or, the City would forget the parking lot, take 5,000 square feet for an access road instead, and give the VFW $3,000.
The VFW rejected the offer at a November meeting. “We think they’re taking too much from our members who fought for this country,” says Ryan. He says the members thought the offer was too low; they also objected to a parking lot, because it would abut the VFW baseball diamond and could become a hangout for miscreants.
“I don’t know why they’d want to build a parking lot on a floodplain, anyway,” he says.
Further, an access road would cut through VFW’s own parking lot, from which the group generates revenue of about $250 a month. “That’s important for our income,” says Ryan. “We’re not exactly a million-dollar organization out here.”
The City countered with a final offer on November 18. Citing a strict Federal deadline, the City said it would pay the VFW $1,350 for the 108,000 square feet it needs to build the trail. “If you fail to respond…or otherwise reject this offer,” wrote the City Attorney, “the City may acquire the easement through the exercise of eminent domain authority.”
Eminent domain allows the government to take private land for a public project––usually a road––at a cost determined by a court.
Ryan says most of the 285 VFW members are generally not opposed to the trail, and they don’t want to be seen as “standing in the way of progress.” He says the VFW feels disrespected.
“People can walk through here, we don’t object to that,” says Ryan. “It’s the City’s attitude that either we give up the land or they’re going to take it. That’s not fair to any veteran.”
The VFW got a reprieve during City Council’s regular meeting on December 16. The agenda asked Council to approve eminent domain proceedings against the VFW and another property owner on River Road, but the vote was postponed. The Federal deadline had been extended, and it wasn’t necessary to begin court action immediately. But Planning Director Jim Tolbert says the City will still take the land if the VFW refuses to sell.––John Borgmeyer