Goliath versus Goliath

By Bill Singer

The New York Stock Exchange (NYSE) is investigating trading by some of its specialists (the firms that provide liquidity on the Floor) for possible violations involving their alleged undue intervention at times when public buyers and sellers were available to trade. During the course of that investigation, the NYSE issued a complaint against LaBranche & Co. (LAB) for allegedly obstructing its probe.   Now, you might ask, who or what is LaBranche --- well, we're not talking small potatoes here --- LaBranche is the NYSE's largest specialist firm with listings for more than 650 companies, nine of which are in the Dow Jones Industrial Average, 30 of which are in the S&P 100 Index, and 101 of which are in the S&P 500 Index.  

Reduced to its essence, LaBranche has produced thousands of e-mails for the relevant years 2000 through 2003, but balked at turning over some 8,000 e-mails they consider “personal” and irrelevant.  LaBranche offered to permit an independent third-party to review the withheld e-mails, and has even asked that the upcoming NYSE hearing be conducted in public. In response, the NYSE has told LaBranche to stick it in its hat --- we'll decide what's relevant or not!  Things have gotten so heated that on August 7, LaBranche's Chief Executive Officer, Robert Murphy, resigned from the NYSE board of directors.

On August 27, 2001, a NYSE hearing panel ruled that LaBranche had failed to cooperate with the ongoing NYSE investigation of its specialist trading activities by retaining personal e-mails of certain LaBranche employees.  The Panel imposed a Censure and a $150,000 fine.  Accordingly, LaBranche  immediately furnished the e-mails in question to the NYSE, but on September 9, 2003,  announced that it is appealing the NYSE's sanctions.

Frankly, it's hard to get too worked up when Goliath battles Goliath.  It's not like we're talking about widows and orphans.  Worse, there’s little sympathy anywhere today for any Wall Street firm or individual that’s on the ropes and staggering.  Bastards have it coming to them, you say. If the truth be told, you won’t get much argument from me on that count either. Nonetheless, I’m uneasy, and here’s why.  New York State Attorney General Spitzer’s recent investigation blew apart Wall Street’s best kept secrets when it uncovered the treasure troth of e-mails that, by now, we’ve all read (and laughed at to some degree).  Poor Jack Grubman and his contemporaries in the industry. They touted one thing to the public, but candidly said something else in their e-mails. All those messages became the proverbial smoking guns --- and they fired lethal bullets. Most legal pros say that without those e-mails there wouldn’t have been a case.

However, think back to what the press frequently said about the e-mails Spitzer disclosed:Wall Street said one thing but thought another.  Now we know what the analysts really thought.  Which brings me to my concerns and fears.  Is this the world --- the country --- that we really want to find ourselves living in? No more unguarded moments. Nothing personal or private. Everything is fair game. 

What I don’t get is why it’s okay to say the very same things over the telephone but not okay to write them in an e-mail. I mean, c’mon, let’s not pretend that every phone call is taped --- at least not yet.  But if you work on Wall Street, the regulators require that all e-mails be archived and turned over on demand.  Worse, now, it's not  what you do that’s an issue; now it’s what you think.  Again, I hear you loud and clear!  Screw 'em.  The hell with those big Wall Street firms.  Let 'em bleed. But let me ask you to consider this --- remember a couple of years ago, before all the lurid stories in the papers --- when you really started using your office computer to send e-mails.  Remember some of the unflattering comments you made about your boss and colleagues?  Remember some of the off-color jokes you sent?  Or, to put it another way --- do you really remember every e-mail you wrote a few years back?  How would you like it if someone started rummaging around everything you wrote for the last few years?  Still comfortable?  Oh, that's not the same thing,you say to me.  You sure?

Funny, I keep thinking of a story I just saw on television about a company that’s making synthetic diamonds capable of fooling the experts. Trouble is, I thought, if the synthetic diamond manufacturer is ultimately successful, he’ll produce a product indistinguishable from the real McCoy --- in which case cheap, man-made diamonds will flood the market and the value of natural-made diamonds will plummet.  As such, diamonds will have the value of rhinestones --- in which case the company producing synthetic diamonds will be producing a product of minimal value (and its success will likely serve as the very cause of its own undoing). An odd conundrum about being too successful.

Yes, the NYSE may prevail.  It may win rulings all the way up the line to the United States Supreme Court that there are no such things as private e-mails at its member firms.  Okay, but just like the manufacturer of synthetic diamonds, the NYSE will find itself defeated at its own hands. No one will use e-mails. The smoking guns of today will be tomorrow’s museum pieces.  And the ultimate benefit is what? You got it --- the misconduct will continue to occur but it just won’t be memorialized. One helluva a victory at one tremendous cost of our right to privacy. So, be careful that your bloodlust for Wall Street doesn’t wind up drowning you in a pool of over-zealous government regulations restricting your rights to privacy.  Always remember thata wall is built a brick at a time.