Constant's pations

If it's more than 30 minutes old, it's not news. It's a blog.

Wednesday, May 18, 2005

Morgan Stanley cited for fraud; threatens to pull ads over bad press

Morgan hit with only $850M punitive damages. This will do little to punish them.

Update: 11 Apr 2006: Arthur Riel, e-mail issues [ Click ]

Reader tip: Pictures inside the courtroom.

Yet, despite facing the prospect of a $1.8B punitive damage award, Morgan Stanley continued with its arrogant, abusive, and outrageous conduct.

The conduct continues! Now they want to threaten the media into silence. Morgan wants their bad behavior covered with lovely flower petals.

Morgan wants control over editorial content, and is threatening to withdraw ad funding from those publishers who do not comply.

Morgan Wants to Control Negative Coverage

  • The pull policy appears to be related to the Perlman litigation [Correctly spelled, "Perelman"]

    Summary of information from JON FINE, AD AGE

  • Pull policies include pulling ads from editions

  • Morgan has new editirial-pull guidelines in place in re Morgan's media Agency, Publicis Groupe's Starcom USA

  • Key term in the Morgan contract
    "In the event that objectionable editorial coverage is planned, agency must be notified as a last-minute change may be necessary. If an issue arises after-hours or a call cannot be made, immediately cancel all Morgan Stanley ads for a minimum of 48 hours,"
  • Morgan has $10.5M with WSJ

  • WSJ Publisher Karen Elliott House has another view:
    "The ad department has no knowledge of what stories are running in the next morning’s newspaper."
  • Others publishing-editorial people at other publications saying terms unenforceable, not workable

  • Following companies have received directives

    - Gannett's USA Today;
    - Pearson's The Financial Times and The Economist;
    - McGraw-Hill Cos.' Business Week;
    - The New York Times and Time Inc.'s Fortune.

    Big Mysteries

  • How are these directives handled?

  • What details can be provided on the pull policies?

  • What does a company issued with such a contract term do?

  • What is the policy and actual response of each of the firms to the Morgan litigation in re Perlman?

  • Have the firms felt pressured to not publish editorials about the punitive damages and fraud found in the Florida court in re the litigation with Perlman?

  • Unresponsive to the courts

    The court has already stated that Morgan hasn't cooperated. If you have a dispute with Morgan, the threat of court sanctions may do nothing to get Morgan to respond.

    Morgan has shown it is unwilling to reform. Those who do not change need to be shown the exit.

    Unreliable counter party

    The problems for Morgan started when they gave Mr. Perlman trashy advice. They failed to properly review the transactions.

    The harm was when Morgan failed to perform its fiduciary duty. The financial costs have been grave. The time delays unacceptable.

    Mr. Perlman found out the hard way that Morgan not only provides trashy information, but will refuse to cooperate with lawful inquiries to that conduct.

    Morgan has demonstrated that it is evil. And now it shows it is no longer a safe company to do business with.

    When a firm engages in this type of conduct and refuses to cooperate with the court, they do little to inspire confidence in the US financial reporting and regulatory system.

    Excessive delays

    It is outrageous that despite this conduct occurring in 1998, it has taken 7 years for Mr. Perlman to find resolution. On top of that, Morgan has refused to cooperate.

    Unreliable corporate citizen

    This is a public company. It is charted in a state. But the damage it does is not simply to a single state, nor confined to a single person. This company is not a reliable or responsive counter party to transactions. It will not do its job. Even when under the threat of court sanctions, they refuse to cooperate.

    They have had plenty of chances to get this right. They have exhausted all reasonable patience.

    Existing mechanisms failed

    Despite Sarbanes-Oxley [Sarbox] and the SEC Blue Ribbon Committee on audit committee effectiveness, Morgan Stanley chooses to defy the court.

    Despite Arthur Levitt's speeches on the Numbers Game, but Morgan still wants to get paid for giving trashy advice. And then to boot, not cooperate with lawful inquiry into they misconduct.

    But when the corporation is so evil that it refuses to adjust management despite the misconduct, then that company no longer deserves to be called a company. It is a threat. To the financial safety and security of all those who come near it.

    Where the courts and existing systems refuse to respond, then that entity needs to be thrown out of the system until the system is ready to combat this evil.

    Indeed, despite the courts findings that there has been fraud, Wall Street has yawned.

    In those cases where the markets fail to discipline a company and the punitive damage awards show no sign of being a sufficient catalyst, then there's a reasonable basis to both increase the punitive damage award, and all public media work with shareholders to oust the current CEO.

    We will find out whether federal regulation of the cess pool in Morgan Stanley will remain illusory or effective.

    Threats aren't all that impressive to bloggers, Morgan. General Motors didn't like what the LA Times wrote. Now Morgan is upset the press is asking tough questions.

    It is self evident that internal reforms have failed. Morgan's only option to avoid stricter sanctions and needed oversight is to intimidate the publishers.

    What Morgan doesn't want editorialized

    Despite the court rulings, Morgan now wants the problem to 'go away' by not talking about it. Morgan needs to be shown the door. Forced to move offshore. And no longer allowed to capture any revenue share in the United States.

    Let's imagine that you're the CEO of Morgan.

  • Do you want the world to raise doubts about your leadership? Of course not, threaten them, just as the United States threatens civilians with incarceration for speaking out about abuses.

  • How long did it take for Morgan to admit that it had e-mails, but refused to turn them over? Years, just as it took years for the United States to accept it committed torture in Abu Ghraib.

  • Who do you want to be associated with: [a] Someone who threatens others; or [b] someone who hold leadership accountable for their fraud?

    Purcell has failed as a leader. He has refused to cooperate with the courts. He failed to ensure his firm timely responded to reasonable lawful requests.

    The CEO has already come under attack by shareholders to oust him. Despite surviving this takeover attempt in April, Purcell now has to manage the fallout from the Perlman case: That Morgan is presumed to have engaged in fraud.

  • Is a $850M punitive damage award going to be enough?

    Arguably not. Punitive damages are supposed to correct behavior both past, present and future; not simply draw a line in the sand, then flash a green light to continue more arrogant conduct and threats.

    Investment advisors are already saying that Morgan could continue operations. So there really isn't much of an impact.

    Silencing the needed discussion

    Morgan is arguably reckless. It threatens those who dare speak out about abuse. Morgan wants the facts to go away. But that does not change reality. Rather, their conduct merely confirms they have not changed.

    Purcell has no magical armor. Denying others the right to speak amounts to censorship; and it is also prior constraint.

    Rumsfeld and Bush want to pretend that the Koran-desecration didn't really occur. "Watch what you say" is what Rumsfeld said. Morgan is doing the same thing.

  • Does Morgan expect the civilian population to grovel in silence?

  • Does Morgan hope that by "not talking about it" it will go away?

    CEO Corporate America is best served when the CEOs take responsibility.


    This kind of conduct is more of the same. Morgan needs to be called what it is: A cess pool that needs to be closed off, cleaned out, and transformed.

    Long ago, before there were sewers in NYC, there was a problem with disease. The stench was awful. Someone came up with the bright idea for a sewer system. It took away the stench.

    Once again, NYC needs a new system to clean out the stench in the financial reporting and regulatory system. There need to be swifter, more effective, and more credible methods to impose discipline on uncooperative participants.

    Banned from doing business

    It is time to make an example of Morgan. Time for the financial reporting and regulatory system to be given a collective kick. Not simply by making Morgan pay. But shutting Morgan down.

    A clear signal. "You will not be evil."

    It is time Morgan is shut down, put on probation, and prohibited from engaging in any business transactions in the United States. The consequences are appropriate and no different than what was imposed on Andersen. The court said the jury could assume there was fraud involved.

    No corporation that is this evil, unresponsive, and reckless should be able to continue doing business. Show them the door. Do what was done to Andersen: Shut them down, and deny them the ability to do business in the United States.

    It is time that Morgan is broken up into competing companies. And both those companies need to be denied access to the US markets for a meaningful amount of time. No firm or entity has any credible foundation to suggest that they can threaten anyone with silence.

    But that is only the beginning. Recall what was done with Andersen. They are no longer doing business in the United States.

    Morgan needs to have a break. It needs some down time. It needs a chance to think about what it really means to be a corporation. It is time to let Morgan think about its future in a place far away from the United States.

    But save us all the hassle of having to run. Make Morgan do the work. Make Morgan do the running. To a distant shore, where others will know what they are capable of doing.

    New CEO

    Companies found to have committed fraud need new leadership. Morgan shows no sign of adjusting its ways. Internal moves to change the leadership have failed.

    The leadership needs to be shaken up. Purcell needs to either step down or be forced out.

    We encourage you to oust Morgan's CEO. The punitive damages was meaingless.

    It is time for the CEO to go. There need to be some effective mechanisms that will shut down Morgan Stanley.

    New Management team

    It's time for Purcell to exit and bring in a new leadership team. Fresh vision, new outlook, and people who are going to respond to reasonable requests for information.

    The new team will be the crew that will be in the best position to transition Morgan from a US-based company to one that does business only overseas. Once Morgan has the time to think about what it has done, perhaps the US might grant it the privilege to do business again in the United States.

    Review associations with Morgan

    Those firms that have been threatened would be encouraged to rethink their association with Morgan. There is no reason you should submit to the abusive conduct and threats.

    When corporations engage in evil activity but refuse to change, the public-shareholders has the right to demand new legislation to force appropriate behavior.

    LAST After the CEO is gone, then the new management team set up by the new shareholders can then print the truth about the fraudulent activities going on in Morgan:

  • Why did it take so long to respond to the court?

  • Why is the court saying that Morgan is committing fraud?

  • Why is the CEO still in place?

  • How many more fraudulent activities are required before the Audit committee increases audit scope per SAS 99?

    Here's the simple answer: Quit bothering. Don't waste your time asking questions. Morgan Stanley is not reliable or responsive.

    Criminal investigation into obstruction of justice

    It is time to reopen the investigations into what happened with Morgan Stanley's advice, and review the pattern of conduct. These are no longer matters of civil liability under the securities regulations; these are matters of criminal law.

    Morgan can change either from within, or from without. Choose.

    Until there are changes, buyer beware! You never know what kind of information you might get from Morgan Stanley.

    You deserve better. America deserves more responsive counter parties. And the world needs to know that this cess pool can get cleaned up, not simply allowed to spread its stench.

    That's not someone anyone needs to be associated with.

    If you want to be associated with fraud, ignore what the court said in Florida. Morgan will not respond unless there are lawsuits. There are more effective ways to spend your time than interacting with unresponsive CEOs.

    Run away from Morgan Stanley, they've been found by the courts to be fraudulent.

    Caveat emptor.