King of the Club by Charles Gasparino

Author:Charles Gasparino
Language: eng
Format: epub
ISBN: 9780061856167
Publisher: HarperCollins

For the next nine months, Spitzer and Grasso would make quite a team, something that irked Pitt at times and his competitors at the NASD all the time. It wasn’t long before the research probe reached a new stage, moving past Merrill to include new targets, mainly Morgan Stanley and its star analyst, Mary Meeker, as well as Citigroup’s Jack Grubman, but Spitzer said he wasn’t content to stop there; he wanted a “global settlement,” something that would clean up conflicted research once and for all. Publicly, Grasso continued to support Spitzer’s broader efforts to bring reform. Privately, he worried that “the lunatic,” as Komansky called the crusading AG, was doing more harm than good.

With Spitzer gathering so much media attention, Pitt had no choice but to compete for headlines and launch a massive probe of his own into research practices. The NASD got into the act as well, rushing in with a case of its own against Grubman and Citigroup for hyping shares of Winstar, a once high-flying telecom stock that had funneled millions of dollars of banking business to Citigroup and benefited from Grubman’s touts but had since imploded in a sea of red ink.

While the other regulators saw publicity in these tactics, Grasso viewed them with contempt. “They’re destroying the markets,” he would tell his staff. “They’re competing to see who can kill the most business first.” The markets were certainly in disarray. Financial stocks, particularly those under investigation, led the losers, but the whole market was being crushed in a wave of suspicion not seen since the 1980s. There was something called headline risk in the stock market. Grasso believed all the elements were in place for a rally—low interest rates, a relatively strong economy—all the elements except one: trust. The average investor believed that Wall Street was a house of cards, and each headline touting a new phase of the probe only solidified that belief.

There was only one solution: to get Pitt and Spitzer to start working with each other rather than competing for headlines. Under the circumstances, forging that deal would make meeting with the Colombian rebels appear easy.

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