For firms in trouble with the Securities & Exchange Commission, Gary Lynch is a go-to guy. So with investigations and lawsuits over its handling of initial public offerings multiplying, Credit Suisse First Boston has hired Lynch as general counsel.
Lynch's track record is impressive--on both sides of the table. As director of the SEC's Enforcement Div. from 1985 to 1989, he oversaw the agency's successful cases against merger mogul Ivan Boesky, junk-bond king Michael Milken, and Drexel Burnham Lambert. After joining the New York law firm Davis Polk & Wardwell in 1989, Lynch steered several big Wall Street players through SEC probes. Lynch is the second high-powered lawyer hired by CSFB since July, when Chief Executive John Mack took over.
The legal eagles will certainly have their hands full: Angry investors have accused CSFB, and other firms, of steering IPO shares to institutional traders in exchange for kickbacks in the form of unusually large trading commissions. The SEC and the National Association of Securities Dealers are investigating the charges. With a slowdown in ad, subscription, box-office, and music sales, investors are skeptical that AOL Time Warner (AOL) can generate its promised $40 billion in revenues and $11 billion in cash flow. Still, the media giant is on the warpath to make its financial targets for the first year of its $103 billion merger. On Aug. 21, the company announced a 1,700-person layoff at the AOL division and an AOL-Sun Microsystems joint venture.
Most of the reductions come from a streamlining of AOL's Web properties, such as CompuServe and AOL Instant Messenger. Five hundred of the cuts hit Netscape's e-commerce software joint venture. That may pave the way for a spin-off to partner Sun Microsystems. Meanwhile, the company has announced a new Interactive Video Div. to speed the introduction of interactive TV services. But the payoff may be years away. On Aug. 21, a federal judge dismissed six shareholder lawsuits against Morgan Stanley Dean Witter & Co. (MWD) and its onetime star Internet analyst Mary Meeker, saying the complaints were in "grossly bad taste." Shareholders have been filing lawsuits against Meeker and other Wall Street research equity analysts charging them with issuing misleading stock calls. Despite the ruling, Wall Street is still not off the hook: U.S. District Judge Milton Pollack in Manhattan gave the plaintiffs 30 days to file an amended complaint against Meeker. No one profited more from the boom-time war for talent than executive recruiters, who often netted commissions totaling 30% of first-year salaries each time clients job-hopped. No longer. On Aug. 20, Paul C. Reilly, the new CEO of Korn/Ferry, the world's largest headhunting firm, announced a second round of layoffs, cutting an additional 20% of the firm's remaining 2,000 or so workers and mandating across-the-board executive pay cuts of 10%. Executive searches have plunged 22% since the first quarter of this year, according to the Association of Executive Search Consultants. Upstart NextWave Telecom took another defiant step forward on Aug. 21. UBS Warburg said it would lend the wireless carrier $2.5 billion. The money will be used to help the Hawthorne (N.Y.) company build a communications network that supports mobile wireless devices with fast Internet connections. The deal is part of a $5 billion fund-raising plan, further details of which are expected to be released during NextWave's bankruptcy hearing in White Plains, N.Y.
Meanwhile, NextWave is also locked in a legal battle with the Federal Communications Commission, which seized the company's wireless spectrum in 1998 when it originally sought bankruptcy protection. An appeals court said in June that the FCC overstepped its bounds. The FCC has since appealed the ruling to the Supreme Court. Talk about an ugly price war. On Aug. 21, Target (TGT) announced that it is taking its discount rival Kmart (KM) to federal court. It accuses the retailer, based in Troy, Mich., of false advertising for its "Dare to Compare" campaign that weighs Kmart's prices against rivals'. Target claims Kmart's price comparisons are often false. Kmart, whose recent price cuts are part of a broader turnaround effort, says Target is just whining because it is falling behind in pricing. The spat shows just how vicious the discount retailing business has become amid a slowing economy. -- Tellabs (TLAB) will lay off 1,000 workers and close a manufacturing plant in Ireland.
-- The FBI arrested eight people it says stole $13 million in McDonald's prizes.
-- General Motors (GM) reaffirmed its production for the year and third-quarter profit estimate. Months after raising $185 million in new financing, Excite@Home (ATHM) is in deep trouble. In a financial statement filed on Aug. 20, its auditor, Ernst & Young, said there is "substantial doubt" that the high-speed Internet access provider will be able "to continue as a going concern." Shares closed on Aug. 22 at 56 cents, 99% off its 1999 high.