5 Dumbest Things on Wall Street: March 19

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InfoGroup's Jet Set CEO

What's the difference between a public company and a piggybank? Apparently not much, if you are InfoGroup's (Stock Quote: IUSA) former CEO Vinod Gupta.

Gupta, who also founded the database provider, agreed Monday to pay more than $7.3 million to settle federal regulators' charges he embezzled nearly $9.5 million from the company to finance a lifestyle that included private jet travel (with and without ex-President Clinton), multiple vacation homes and nearly two dozen fancy automobiles. Unsurprisingly, the formerly jet-setting CEO agreed to the settlement announced by the Securities and Exchange Commission without admitting or denying the agency's allegations, but did agree to refrain from future violations of securities laws.

Gupta served as CEO and chairman of the company from 1992 through August 2008, when he resigned to settle a shareholder lawsuit alleging the company misspent millions of dollars on domestic and international air travel for Clinton and his wife, then-Sen. Hillary Rodham Clinton. Bill Clinton had a six-year, $3.3 million consulting contract with the company, ostensibly to open doors for Gupta and Omaha, Neb-based InfoGroup. (Either that, or Bill has mad tech skills we don't know about.)

According to the SEC's civil lawsuit against Gupta, however, it was Gupta who was constantly opening doors. The door to his private jets, to his 80-foot yacht, to his five vacation homes, to his 28 country clubs, etc. The key to all those doors being shareholder dollars he allegedly sucked from InfoGroup's coffers.

Now that Gupta is barred from serving as an officer or director of any public company, it seems the SEC has finally changed the lock on him.

Dumb-o-meter score: 75 -- Gupta gave over $1 million to Bill Clinton's presidential library in Arkansas, so if he wants to read up on corporate governance, that's a good place for him to get some peace and quiet.

 

 

Boston Scientific's Latest Heart-Stopper

Be still our beating hearts, Boston Scientific (Stock Quote: BSX) is screwing up again.

The cardiac device specialist said Monday it was voluntarily suspending all sales of its implantable heart defibrillators after it failed to notify regulators of changes in how it manufactures the devices. Boston Scientific said the manufacturing change poses no risk to patients and it was working with the FDA to resolve the situation.

The company, which just last month agreed to pay more than $1.7 billion to rival Johnson & Johnson to resolve three patent disputes over its heart stents, conceded that the slip-up could have a material impact on the company's previously issued revenue and profit guidance. As a result, shares of Boston Scientific seized up on the news, falling by as much as 18%.

Of course, a collapse in the company's stock should not cause any longtime shareholder's heart to skip a beat. In fact, it's far from irregular. Over the past five years, the company's stock has fallen over 78%, while shares of competitors Medtronic and St. Jude have lost 15.5% and gained 6.5%, respectively, over the same period.

Note to Boston Scientific: In the future don't put the defibrillator before the hearse...Sorry, we mean the heart before the horse...Ah forget it...Next time call the darn FDA before you ship altered products, you morons!

 

Dumb-o-meter score: 80 -- Have a heart, guys, and stop giving the FDA palpitations.

 

 

Moody's Credibility Gambit

On the plus side, Moody's (Stock Quote: MCO) is finally rating credits responsibly after more than a decade of taking Wall Street's money for nothing.

On the minus side, by waiting so long to do their jobs, these boneheads could ignite a global depression by dropping its triple-A rating for the U.S. when we need it the most.

Moody's, which helped spawn the credit crisis by blessing billions in toxic mortgage bonds with triple-A ratings, said Monday in a report that the top notch credit ratings of the U.S. and Britain are currently "well-positioned, despite their stretched finances." The fragility of the global recovery, however, exposes these governments to "substantial execution risk in the implementation of their exit strategies, which could yet make their credit more vulnerable."

Dudes, what are you thinking? Your dereliction of duty was a prime reason we got into this whole mess and now you are acting honestly? You have to be kidding us! The last thing the U.S. needs right now is higher borrowing costs from our foreign bankers due to a ratings downgrade.

What we really need is to bring back the old Moody's. The lazy, greedy ratings agency we came to know and abhor. The one Connecticut Attorney General Richard Blumenthal sued last week, along with McGraw-Hill (Stock Quote: MHP) unit Standard & Poors, "for knowingly assigning tainted credit ratings" to risky bonds backed by subprime loans.

Look Moody's, we know we've been riding you to improve your practices, but this time, with the world's economy hanging in the balance, it's better never than late.

 

Dumb-o-meter score: 85 -- Moody's finally gets religion -- just in time to send the world to hell in a handbasket.

 

 

Netflix Prize Fight

Hallelujah! There is going to be one fewer stupid movie award show cluttering the airwaves and blocking our bandwidth. No, we're not talking about the People's Choice Awards. Netflix (Stock Quote: NFLX) is cancelling its movie-recommendation prize.

The popular DVD-by-mail service provider announced late last week it was scrapping the second installment of the contest in order to settle a lawsuit alleging it intended to release millions of movie-rental records that could have illegally exposed sensitive information about its members' lifestyles. Netflix, which boasts over 12 million subscribers, was going to release the data without names attached, but critics maintained the privacy protections were still inadequate.

Whew! We were worried somebody might figure out that it was indeed the employees here at the Five Dumbest Lab who rented Caddyshack 26 times. Thankfully, now nobody will ever know.

A seven-member team of scientists and engineers -- yeah, a geek squad -- won Netflix's first competition last September, beating out over 50,000 entrants. Neil Hunt, Netflix's chief product officer, blogged that the company still hopes to work with researchers on advanced ways to of identify movies that people would enjoy viewing.

We hope those same researchers put their talents to a far more important and productive use: Finding dumb things on Wall Street.

Dumb-o-meter score: 90 -- Netflix deserves the Nobel Prize for proving the theory: You are what you rent.

 

 

Lehman's Hokey Pokey

The autopsy report on Lehman Brothers (Stock Quote: LEHMQ.PK) is in. And boy, does it make a lot of people look dumb, crooked or both.

The details of how Lehman failed were released late last week in a massive 2,200 page report from law firm Jenner & Block, the bankruptcy examiner in the case. The summary conclusion seems to be that there's plenty of blame to go around in what resulted in the largest bankruptcy filing in U.S. history, from bad management to bad accounting to plain old bad luck.

That said, the report was harshest of all in its criticism of Lehman's top executives, saying their conduct ranged from "serious but non-culpable errors of business judgment to actionable balance sheet manipulation."

Getting the most attention so far is Repo 105, an aggressive -- bordering on sketchy -- accounting treatment used by Lehman's chieftains as far back as 2001. Repo 105 describes Lehman's efforts to hide tens of billions worth of toxic assets at the end of each quarter, by selling them with an obligation to buy them back a few days later. Lehman hid more than $50 billion worth of these questionable assets from investors in its second quarter 2008 10-K, but it capped the size of Repo 105 transactions at $17 billion in July 2006, according to the Jenner & Block report.

Put even more simply, Lehman Brothers was running a shell game, promoting its financial strength to investors (save Lehman-slaying hedge fund manager David Einhorn) by showing billions of dollars of assets, and then, with a touch of accounting wizardry, making those same billions disappear to please its regulators and auditors, who were more interested in playing along than blowing the whistle.

Ultimately, however, Lehman's magic act was more hokey pokey than hocus pocus. It never got rid of the toxic trash at all. It just repeatedly put the whole bag of bad assets into a Repo 105 deal, and then took the whole bag out. Until, of course, the ballooning credit crisis caused the whole twisted game to end and Lehman was carried out on a stretcher.

And for those who never get a chance to read the full, damning report: That's what it's all about.

Dumb-o-meter score: 95 -- Who else was doing Repo 105 transactions? Like Warren Buffett says, 'There's never just one cockroach in the kitchen.'

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