These are extremely delicate times in the capital. As Deng Xiaoping, the paramount leader, lies dying, a volatile succession struggle is underway. The last thing the Politburo wants to see is crowds of ram-bunctious NGOs take to the streets, protesting China’s one-child policy or its treatment of Tibetan women. “We have word from reliable sources that Chinese embassies will stop issuing visas to human-rights groups, Taiwan separatists and lesbians,” says Anne Walker, executive director of the International Women’s Tribune Centre.
What else could be behind Beijing’s abrupt change of venue for the NGOs? China first offered a sports center near the U.N. convention–then suddenly discovered “structural flaws” in the building and decided to relocate the forum. (By odd coincidence, Prime Minister Li Peng had just returned from a U.N. meeting in Copenhagen, where he’d been accosted by unruly NGOs.) The new site in Huairou is more than an hour away from the capital and, so far, has no hotel rooms, no phones, no computers and no public transportation. It’s a fitting place of exile. For centuries, Ming Dynasty emperors banished military officers to this dusty Great Wall garrison to pacify the nomadic tribes that roamed China’s vast northern frontier. Huairou, after all, means “be kind to barbarians.”
title: “It S My Party…” ShowToc: true date: “2023-01-20” author: “Corey Bridgewater”
The tab for the party, held in June 2001, was petty cash in the scheme of things. Kozlowski stuck Tyco with a bill for slightly more than $1 million, a minuscule part of the $600 million prosecutors charge him and his codefendant with looting from the company. But 20 minutes of video can leave more of an impression on a jury than 200 pages’ worth of eye-glazing financial maneuvers. Tyco paid more than half the party’s costs, prosecutors charge, only because Kozlowski manipulated the firm into combining it with a business event of sorts. Kozlowski’s lawyers say it was a legitimate corporate expense.
As scenes of this debut-de-siecle excess were being replayed endlessly on computer screens and cable TV last week, another example of tacky and outrageous behavior surfaced, this time involving mutual funds. The tie to the Tyco trial? Mutual-fund insiders stand accused of the same kind of “it’s my party and I’m gonna get everyone else to pay for it” behavior as Kozlowski.
Regulators charged one of the country’s biggest fund managers, venerable Putnam Investments, with allowing managers to enrich themselves by making improper trades in the shares of the funds they were running. Think of it as an overpaid babysitter supplementing his income by looting your kid’s piggy bank. Then news leaked that one of the fund industry’s most prominent and richest managers, Richard Strong, is likely to be indicted soon. The founder of the Strong Funds is accused of enriching himself, his family and “friends” to the tune of $600,000 or so by improperly trading shares of funds that his firm manages.
There could be more revelations this week, possibly involving fund insiders trading stocks based on what they knew their funds were planning to do. On Monday, New York Attorney General Eliot Spitzer is scheduled to star in Senate hearings about the fund industry. Spitzer kicked off the fund scandal in September by exposing illicit relationships between a big hedge fund and four mutual-fund companies. In an interview with NEWSWEEK, Spitzer declined to discuss what juicy new tidbits, if any, he’d unveil, but he continued his weeklong attack on the Securities and Exchange Commission. “The regulators at the SEC seem to have been oblivious to what was going on,” Spitzer said. The SEC has broad powers over funds, fund companies and advisers, but apparently knew nothing about the fund abuses that Spitzer has exposed. An SEC spokesman declined to comment on Spitzer’s barbs. SEC regulators say they haven’t had the resources they need to properly monitor the huge and sprawling mutual-fund industry.
There’s no memorable video of fund folks cavorting in togas, alas, but their alleged behavior seems as penny ante as Kozlowski’s. Take Dick Strong, who’s worth $800 million, according to Forbes magazine. Most of that wealth consists of his ownership stake in the company that manages the Strong Funds. Regulatory sources say Strong made a series of improper rapid-fire trades from 1998 through 2001 for some of his own accounts and about a dozen other people. The idea that the owner of a fund company would use his position to take unfair advantage of his funds’ shareholders is heresy.
If these allegations are accurate–Strong’s lawyers say he did nothing illegal but won’t discuss details–Dick Strong has put his empire, 30 years in the making, at risk for petty cash. At the least, Strong is almost certain to be booted from his job. His management company will have to deal with shareholder defections and lawsuits. At worst, the supposedly independent directors of the individual Strong funds may develop some backbone, fire Strong and hire untainted management to run the funds. If that happens, Strong’s management company could become almost worthless.
Putnam, the nation’s sixth largest fund company, according to Financial Research Corp., has similar problems. The firm is owned by Marsh & McLennan, which would suffer grievous harm if the Putnam management company imploded.
According to the cases brought by the SEC and Massachusetts regulators last week, Putnam caught some of its managers making improper trades but didn’t stop them. Rather, it allowed such activities to go on until Spitzer filed his initial case in September. Putnam could probably have bought its way out of trouble by immediately firing the managers and reimbursing fund shareholders for the allegedly illicit profits, apparently a few million dollars. The Putnam management company was probably worth at least $5 billion, pre-scandal. But now, big accounts like the state of Massachusetts are fleeing, lawsuits are looming and there’s always the chance that the Putnam funds’ directors will exercise their right to hire new managers.
As corporate and fund scandals pile up, a clear pattern is emerging. Rich executives and managers, many of whom had more money than most of us could spend in a lifetime, couldn’t seem to stop themselves from trying to grab a little more. Now, like Dennis Kozlowski, they’re paying the price for going too far. Making money is fine. But overreaching and tackiness aren’t.
Back in June 2001, when Tyco reigned and the words “mutual fund” and “scandal” weren’t connected, Kozlowski was an American success story. He had risen from modest beginnings to become a corporate titan worth hundreds of millions of dollars. But instead of paying the full tab for his wife’s party, which he could have easily afforded, he got Tyco to fork over a crummy million bucks. Sure, even if he had paid for the party himself, he’d still be on trial for embezzlement. But prosecutors wouldn’t have been able to get the party video into evidence. Kozlowski would still have some shreds of his reputation left, perhaps, and would have a better chance with the jury. But those of us with broadband connections wouldn’t be having so much fun.
