5 Dumbest Things on Wall Street: Oct. 23

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Inept Insider Trading

NEW YORK (TheStreet) For such a wealthy, smart guy, Raj Rajaratnam looks like one poor, dumb criminal.

Rajaratnam, the billionaire founder of the Galleon hedge fund, is alleged to have conspired with six other people to make illegal trades based on insider information that brought in $20 million in profits, according to a pair of criminal complaints filed in U.S. District Court in Manhattan last Friday. Some of those sketchy transactions involved shares of Google and IBM. Another score for Raj and his merry band of tipsters was Internet infrastructure provider Akamai Technologies, which they successfully shorted after receiving non-public earnings information from an unidentified person at the company.

Too bad he allegedly blew it all and more on a failed attempt to game shares of chipmaker Advanced Micro Devices (Stock Quote: AMD).

According to The New York Times, Galleon Group bought $85 million to $90 million worth of AMD stock from August 2008 to October 2008. The purchases were made after Raj and alleged co-conspirator Danielle Chiesi clandestinely learned from an IBM executive that the government of Abu Dhabi would invest billions of dollars in AMD. Chiesi worked at New Castle Funds, a hedge fund closely associated with Galleon, which also took part in the trade.

Alas, the best laid plans of rats and men often go astray. The market tanked in September and October of last year, taking AMD along with it. By Oct. 6, Galleon's AMD investment was worth only about $68 million, a loss of roughly 25%. And on Oct. 7, when AMD finally announced its deal with Abu Dhabi no surprise to Raj and his crew, of course its stock closed about 8% percent higher that day, but still well below Galleon's purchase price.

Galleon held on to nearly all its AMD stock after the deal was announced, says the Times, only to see it resume its plunge during the rest of October. In total, Galleon lost about $30 million on AMD, more than wiping out his gains from his other allegedly unlawful trades. The hedge fund manager is now out on $100 million bail and proclaiming his innocence, despite wiretaps and extensive evidence pointing to the contrary.

Then again, we'd also be loath to admit we knew the next pitch but whiffed anyway.

Dumb-o-meter score: 95 Sorry, Raj, but the Justice Department likely won't be content with simply telling you, "Cheaters never prosper."




Kirk's Kooky Logic

Kirk Kerkorian adamantly believes that his 37% stake in MGM Mirage (Stock Quote: MGM) should be worth more. In fact, the billionaire investor is so confident his shares are undervalued that he just may sell them.

All together now: Huh?

Smart investors, and that includes Kerkorian (or at least it used to before his disastrous ventures into Ford and GM), generally hold onto, or accumulate more of a company's shares if they believe the market is not giving it a fair shake. Not Kerkorian, however. On Tuesday, he said through his investment firm Tracinda Corp. that he is "exploring the possibility of strategic partnerships or other alternatives" for his massive stake in the struggling Las Vegas-based casino company.

Don't understand the method to Kirk's madness? Don't worry. MGM Mirage CEO Jim Murren can't seem to figure it out either.

"I can't speak for what their intentions are right now, but I can say that their investment intent has apparently changed," said Murren. "And it's gone from one as a somewhat a passive investor to one that's going to take a more active role in attempting to increase shareholder value for all shareholders."

Pray tell, Jim, how on earth does actively dumping a ton of shares into the open market accomplish that? MGM Mirage closed at $11.93 on Tuesday, up 1.1% for the day but down more than 87% from its Oct. 23, 2007 peak, when it closed at $92.69.

No, what MGM really needs is less shares for sale and more buyers of condos in that huge $8.5 billion white elephant on the Las Vegas Strip it calls CityCenter. MGM Mirage also said Tuesday that its third-quarter earnings will show a $955 million charge to reflect the falling value of CityCenter. MGM Mirage said its stake in CityCenter was worth about $2.44 billion as of Sept. 30.

While threatening action, albeit of an unknown sort, Tracinda said it would not make a move until after the casino at CityCenter opens in late December. At that time the world will know if Kirk plans to hold 'em or fold 'em.

Right now, however, it sure looks like he plans to walk away. Or maybe run.

Dumb-o-meter score: 90 Captain Kirk can't figure out how to save this enterprise.





Sears Isn't Very Book Smart

Sears (Stock Quote: SHLD) is entering the bookselling fray. Perhaps it should consult an economics text book first.

Sears, the retailer best known for its Kenmore appliances and Craftsman tools announced its plan this week to offer discount hardcover books, putting the company into direct competition with the likes of Wal-Mart (Stock Quote: WMT), Target (Stock Quote: TGT) and Amazon (Stock Quote: AMZN). And they seem determined to win this race to the bottom.

Sears Holdings, which operates Sears and Kmart, says it will reward customers if they purchase a book from its top ten list on Sears.com, or rival sites Walmart.com, Target.com and Amazon.com. The gift? An online credit equal to the purchase price of the book, or up to $9.

The catch you knew there would be a catch, right? is that the rebate can only be used toward a purchase of $45 or more on Sears.com. Customers who buy their books elsewhere simply need to e-mail their receipt to Sears to obtain the credit.

Upon further review, Sears' strategy essentially steers customers to its competitors, since all three are selling the expected bestsellers for about $9, much lower than Sears' offering prices. Dean R. Koontz's "Breathless," for example, costs $17.98.

Sears and the rest of the discounters don't seem to mind using bestsellers as loss leaders. But all this price slashing, on top of the pricing pressure from e-books, is threatening to obliterate the publishing houses' economic structure.

Just as Sears was joining Wal-Mart, Target and Amazon, a trade group was requesting the Justice Department look into "predatory pricing practices of the three retailers. The American Booksellers Association, in an Oct. 22 letter, said the low prices being offered by discount booksellers, many independent book stores could be driven out of business, harming competition, according to The Wall Street Journal on late Thursday.

Maybe Sears should just turn the page on this idea and stick to hawking tools and appliances.

Dumb-o-meter score: 85 Will Sears book any profits from this idea? We think not.





Exxon's Pollution Solution

Enough with the slick legal maneuvers, Exxon Mobil (Stock Quote: XOM). You polluted and now it's time to pony up the damages.

A federal jury in New York City ruled Monday the oil giant had contaminated the city's ground water and ordered the oil giant to pay a penalty of $105 million. The city proved its case that Exxon knew that gasoline additive methyl tertiary butyl ether (MTBE) would taint ground water if it leaked from the underground storage tanks at its retail stations, but the company used it nonetheless. According to the city, Exxon even disregarded warnings from its own scientists not to use MTBE in populated areas that relied on ground water for drinking water.

MTBE is a gasoline additive used to increase its octane level and reduce air pollution. Despite its benefits for cleaner air, it has largely been phased out of the U.S. fuel supply because of the dangers to ground water.

Royal Dutch Shell, BP Plc, Chevron, Citgo Petroleum, Hess and Sunoco have previously settled with New York for a total of $15 million over the same offense. Exxon, however, is maintaining its innocence, saying the leaks did not come from their stations. The company says it's considering its legal options to fight the ruling.

"We do not believe we should be required to compensate the City of New York for someone else's contamination," company spokesman Kevin Allexon said in an email to Reuters.

We here at the Five Dumbest Lab say its time for Exxon to stop paying its lawyers and start paying New Yorkers. The $105 million verdict represents less than 3% of Exxon's second-quarter profit of $3.95 billion, so the company can clearly afford it.

Dumb-o-meter score: 80 New Yorkers can handle pollution. Just not in their drinking water.




P&G's Toilet Talent Search

If you love the loo, and we mean really love it, then P&G (Stock Quote: PG) has a job for you.

P&G's Charmin toilet paper division launched a national job search this week to locate five "outgoing and enthusiastic people" to work in New York City's Times Square Charmin Restrooms this holiday season for a salary of $10,000 each. The lucky five selected will interact with a multitude of restroom guests while getting paid to revel in their own "love of the loo."

Yep, we're serious. And don't you call them bathroom attendants either. Charmin is referring to its new employees as "Charmin Ambassadors."

Now that's what we call spin. And it doesn't stop there.

In its want ad, Charmin says "all candidates must really, really enjoy going to the bathroom." Furthermore, applicants must be prepared to answer why they "enjoy the go" more than anybody else.

Believe it or not, this is not Charmin's first potty promotion. This is the fourth straight year the company will provide tourists and locals alike with what it calls a "relief refuge" and momentary respite from the holiday rush. And Charmin is not being chintzy with its portable potties. The 20 deluxe and soon-to-be fully-staffed restrooms will offer additional amenities, including stroller parking, baby changing stations seating and a family photo area.

As to what kind of family would snap photos of its bathroom experience, we have no idea. But we are sure the five "Ambassadors" will fill us in on all the details part of their job will be to blog about their experience in the proverbial hot seat.

Dumb-o-meter score: 75 Newest Sign in Times Square: Employees must wash their hands before blogging.

 

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