There’s a ton of interesting stuff going on in the Wall Street sphere of late – I’m trying to find some time to do a proper write-up of the extraordinary lawsuit just filed by the Better Markets advocacy group against Eric Holder’s Justice Department, seeking to invalidate the $13 billion JP Morgan Chase settlement – but one particular thing happened this week that just can’t go by without comment.
John Mack, the former CEO of Morgan Stanley and one of the more irritatingly unrepentant dickheads of the crisis era, gave an incredible interview to Bloomberg TV. In a discussion about executive pay, Mack said we’re all being too rough on his fellow too-big-to-fail bank CEOs.
He would love, he said, “to see people stop beating up on Lloyd and Jamie,” endearingly referring to Goldman chief Lloyd Blankfein and Chase chief Jamie Dimon by their first names (Mack must be in a bowling league with both men). He added: “I think that would make a lot of sense, and I’m in favor of that.”
Mack went on to say that the debate over compensation was healthy, just not always warranted. “As long as shareholders reward performance,” he said, “we can argue.” But, he added, “The last time I checked, this business is still a business that pays people extremely well.”
It’s already funny that of all the injustices in the world, this was the one Mack decided to worry about on TV: the criticism of poor Jamie Dimon’s 74 percent raise. But more to the point: If we really did live in a world where shareholders rewarded performance, would a CEO who just oversaw a record $20 billion in regulatory penalties even have a job, much less be getting a raise?
Mack had stones enough to be whining about people “beating up” on Jamie Dimon, given the year Chase just had. But to do so and simultaneously scold us that high compensation on Wall Street is just “shareholders rewarding performance,” that’s either Nobel-caliber chutzpah or laboratory-pure stupidity.
John Mack of all people should be quiet when it comes to the issue of public outrage over bank corruption. How about this, John: All of us malcontents will promise to stop beating up on your fellow CEOs, if you share with us the entire contents of your conversation with Pequot hedge fund honcho Art Samberg on June 29th, 2001?
Mack, readers may recall, was at the center of the controversy involving SEC whistleblower Gary Aguirre. Aguirre is a lawyer and investigator who began working for the SEC in September 2004. One of his first assignments was to look into a case involving a hedge fund called Pequot Capital Management, which had made a highly auspicious series of trades just ahead of, and after, a merger involving GE and a company called Heller Financial in the summer of 2001. The man making the deal was legendary Pequot trader Art Samberg.
As evidence in a Senate investigation into Aguirre’s firing later revealed, Samberg made a huge investment in Heller on July 2nd, 2001, apparently without having done any research into Heller before that time. He had, however, talked the previous business day (Friday, June 29th) to John Mack, who had recently left a job running Morgan Stanley and had just returned from Switzerland, where he’d interviewed for a job with Credit Suisse. Both Morgan Stanley and Credit Suisse had worked on the merger for Heller financial. and, the Senate explained, “possessed material, non-public information about the deal.”
Right after Mack talked to Samberg and Samberg invested in Heller, Pequot cut Mack in on a lucrative deal involving a Lucent spinoff that ended up more than tripling Mack’s $5 million investment. When Aguirre asked permission to interview Mack about all of this, he was denied such permission by his superiors at the SEC. When he pressed, they fired him (Aguirre later won a wrongful termination settlement with the SEC in the amount of $755,000).
Ultimately, the government did not interview Mack about the Pequot deal until August 1st, 2006, exactly five days after the five-year statute of limitations on the incident had expired. In that testimony, Mack denied having foreknowledge of the Heller deal, and claimed that Samberg had wanted him to invest in the Lucent spinoff, not the other way around – despite the fact that the SEC had emails from Samberg saying Mack had nagged Samberg to let him into the lucrative deal, “busting his chops” to get in.
The government never really pursued the matter further and Mack’s role in what the Senate called a “highly suspicious” trade was never fully investigated. He ultimately returned to Morgan Stanley to serve as the bank’s CEO from 2005 to 2009.
All of which means exactly nothing today, over a decade after the original incidents. By now it’s just one of a pile of stories about cases that never got made against Wall Street executives for questionable behaviors in the pre-crisis years.
Still, it seems to me that after having been saved by the gods from the jaws of death in the Heller episode, Mack should probably henceforth stay on the sidelines in any debate about financial corruption. That he doesn’t should tell us a lot. I’m not sure these guys can even spell “shame,” much less exercise any.