Friday, February 24, 2006

Free Money

What is "Free Money"? A convertible issue awarded at "par" when the secondary market is 105+ bid? An allocation of shares in a "hot" IPO at "issue price" where the WI-price is higher? Or perhaps one's annointment with a piece of privileged material non-public information that will have deterministic impacts upon the future market price of security.

While UK fund manager GLG and co-founder Philippe Jabre vehemently deny that anything was askew with their short-sale of stock prior to the announcement of material corporate financing news (at least as far the one they are specifically accused of), and with GLG itself stressing that there will be no disciplinary action related to their oversight of Mr Jabre, the complete opposite is happening on the other side of the planet in Japan. For this morning, Japan's largest financial publisher the Nihon Keizai Shmibun (Nikkei) which is their equivalent of the FT or WSJ, immediately cut the pay of its President and two senior executives as a result of accusations of insider trading by a Nikkei employee and an official investigation, according to Bloomberg Business News. The 30-year old employee was alledgedly front-running front-page announcements regarding stock-splits, secondary offerings, and other market-moving corporate actions. In addition to the President's pay cut, ALL Board members will take a 1-year 10% pay cut, the head of the accused employee's division will resign, and all employees in the advertising division will be instructed to refrain from trading stocks.

The contrast between cultures and organizations is striking. Both organizations were caught with their hands in the cookie jar, yet one has embraced and addressed the accusation, even before the investigation has been completed, while the other has dug in its heels, however implausible its explanation may be. Interestingly, Nikkei is NOT a public company, and is not beholden to regulators or Sarbanes-Oxley criteria, yet they still have been widespread in their self-apportionment of responsibility, actions from which "Scooter" Libby & the Bush Administration, Secretary Rumsfeld & the US Military in respect of the Abu Ghraib scandal, and yes, GLG, could indeed learn some valuable lessons.

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