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Main Street Is Wise to Wall Street's Ways...

"How corrupt is Wall Street?" (Cover Story, May 13) is delightfully informative. My conclusion was succinctly stated by Felix Rohatyn: "If Wall Street knows what is good for it and what is good for this country, it will very definitely clean up its act."

Much of the blame can be placed on how firms supervise their brokers and respond to customer complaints. I have yet to be involved in a securities arbitration where the brokerage has said: "Sometimes things don't go the way they are supposed to. Mrs. Smith has a legitimate claim, and we'd like to settle her loss in full without hassles and delays."

While most brokers and brokerage firms can be proud of their customer relationships, some cannot. It is the latter who have given customer securities lawyers full employment. Fortunately, the National Association of Securities Dealers and the New York Stock Exchange arbitration panels recognize that for the retail securities industry to exist, the public must believe that the dispute process is fair and that legitimate claims will be fully compensated.

Lawrence Elkus

Farmington Hills, Mich.

Editor's note: The writer is an attorney with a securities law practice.

"How corrupt is Wall Street?" Extremely! As a former broker, I can tell you the corruption is pervasive, down to the branch managers and brokers. The managers and vice-presidents think they are exempt from prosecution. When they are served with subpoenas, they laugh and send them to the legal and compliance department. Officers will do nothing to fix the system because they receive override commissions for all of the commissions earned by brokers in their office or region. Speeches and posturing will not solve this problem. Tough laws will.

Brian Napoli

Medina, N.Y.

The real story is the brutal pressure inflicted on well-meaning, hard-working, "old-line" stockbrokers for 25 years. Doing business the old-fashioned way became a sin. If brokers would not move a large part of their clients' assets (separate accounts and individual stock and bond positions) into the firm's proprietary mutual funds, they were fired. Those very rare brokers who showed true character and resisted this unparalleled robbery have been way too quiet.

Bill Michaels

La Jolla, Calif.

Surely the CEO of Merrill Lynch & Co. knows his company has failed to "live up to the high standards that are our tradition" these many years. Even this unsophisticated investor has suspected this in view of the turkeys that have been recommended to him.

Joseph L. Hudson

Arlington, Va. "How corrupt is Wall Street?" fails to note the constructive changes that the securities industry made during the past year. Last June, the Securities Industry Assn. endorsed Best Practices for Research. These practices include: corporate governance policies that ensure the integrity of research, including reporting lines that separate the investment banking and research departments; plain-English recommendations; disclosure of any financial ties that analysts and/or their firm have with the company that is the focus of a report; and practices that base an analysts' compensation on a broad range of factors, including the performance of their recommendations--but not specific investment banking transactions. We testified on Capitol Hill, outlining this and other industry initiatives.

As a result, a large number of Wall Street firms changed their organizational structure or policies to make research more independent, objective, and useful. Our industry has worked hard to address the perceptions about the independence of analysts.

Earlier this year, at the urging of House Financial Services Committee Chairman Michael Oxley (R-Ohio), committee member Richard Baker (R-La.), and Securities & Exchange Commission Chairman Harvey L. Pitt, the self-regulatory organizations proposed rules that address the major issues concerning analysts' conduct. These rules, passed on May 8, are tough. Analysts cannot sell stocks they are telling investors to buy. Relationships that securities firms have with a company they are covering must be clearly disclosed. Research reports must show how the analyst's recommendations have performed over time.

These and other requirements will provide investors with more transparency and more information. While some of these provisions may go too far or miss the mark, we support the move to rules by the New York Stock Exchange and the National Association of Securities Dealers, which have the force of law.

U.S. markets remain the world's leader in integrity, transparency, liquidity, and depth. Last year, U.S.-based companies raised more than $3.4 trillion in U.S. markets, which helped to jump-start our stalled economy. Moreover, in the past month, we've unveiled new education initiatives, most notably our Web site (, to help investors learn as much possible about personal finance.

We are fully committed to doing whatever it takes to maintain and enhance investors' trust and confidence in our markets and our industry.

Marc E. Lackritz


Securities Industry Assn.

Washington The simplest solution: Compensate stockbrokers and mutual funds according to the profit earned, not the asset value under management.

Leslie Reed


Instead of restricting what analysts can do and adding more regulations, require analysts to put most of their own money into a trust fund--one

that follows each analyst's published recommendations.

Bruce E. Lutz

Nashua, N.H.

Politicians created the monster, in part, through the gutting of the Glass-Steagall Act. If lawmakers and regulators truly want to reform, they should consider removing the incentives that promote bad behavior on an institutional level by eliminating the investment banks' ability to be compensated for financial advisory services if they are to be engaged in raising capital.

Richard F. NeJame

Spring Lake, N.J. As a former New York Stock Exchange member firm supervisory analyst, I read the article on New York State Attorney General Eliot Spitzer with interest ("Trying to build a wall on Wall Street," News: Analysis & Commentary, Apr. 29). While reading the research generated by any number of firms from 1998 to 2000, I was certain that NYSE Rule 472 ("Communications with the Public") had been removed from the syllabus.

A review of the exchange's Web site, however, disabused me of that notion. Perhaps the public-relations pickle that firms now face would have been mitigated had they re-read the rule on a yearly basis, particularly those sections dealing with exaggerated and misleading statements.

Jack Walton

Short Hills, N.J. We were surprised by the headline for your story about Coca-Cola and its bottling partners ("Has Coke been playing accounting games?" Finance, May 13). Both we and Coca-Cola Enterprises have been open and transparent in all of our financial reporting. You reference a change in how marketing payments are made to Coca-Cola Enterprises by Coca-Cola Co. As CCE disclosed several weeks ago, the Securities & Exchange Commission agreed that the way CCE had been doing it was acceptable. At their recommendation, CCE changed to an accounting method that the SEC felt was preferable.

Further, you [mischaracterize] Coca-Cola's "marketing support" payments to its bottling partners as subsidies. These payments are agreed-upon contributions the company makes to pay for joint marketing programs. They support activities that increase sales of Coca-Cola products, and so directly benefit our company and our bottling partners.

Sonya H. Soutus

Director of Corporate Communications

Coca-Cola Co.

Atlanta Robert Kuttner's diatribe ("AT&T and Comcast: A bad deal for almost everybody," Economic Viewpoint, May 20) has so many factual errors and blatant distortions that one has to wonder whose political ax he was grinding. In comparing what AT&T paid for TCI and MediaOne with what it is getting from Comcast for AT&T Broadband, Kuttner ignores TCI and MediaOne nonstrategic assets that AT&T has since sold. The net cost was more like $60 billion, nearly $40 billion less than he claims.

Kuttner says AT&T overpaid for cable systems but offers no evidence. In fact, on his chosen measure, AT&T paid about $4,100 per cable subscriber. Comcast at the time had a market value of about $6,500 per subscriber. Because we purchased those cable systems to expand beyond their video offerings, an even more pertinent measure would be the cost per household passed. On that metric, we paid about $2,400 per household--far less than contemporaneous deals, which ranged from $3,500 per household (Charter/Falcon) to $4,600 per household (Comcast/Lenfest).

Kuttner claims that AT&T Chairman Mike Armstrong "never executed the synergy strategy," ignoring, among other things, that AT&T Broadband has more telephony customers than any other cable company--more than 1 million. In fact, AT&T Broadband's combined telephony, high-speed data, and digital-video growth leads the industry. About 6 million of our cable customers have purchased a bundle of services.

Kuttner overstates AT&T Comcast's share of the U.S. cable market. Combined, AT&T and Comcast have about 21 million subscribers--a lot, but far less than "40%" of the 72 million homes that subscribe to cable.

Kuttner also overstates Armstrong's total compensation. Anyone who cares to read our SEC filings will see that Armstrong's cash compensation in 2001 was about $5 million. In addition, he received about $800,000 for performance in prior years. Finally, he was granted about $4 million in restricted stock that will not vest until 2004, plus options on about 1 million shares that will vest at various times over the next four years. While our proxy sets the Black-Scholes value of those options at about $7.5 million, the strike prices are higher than AT&T's current share price. In fact, according to BusinessWeek's own compensation survey, Armstrong's pay is well below that of most of his peers in the telecommunications industry.

Further, there is nothing "suspicious" about the deal. Our news releases and proxy lay it all out. The Robertses' voting power will be less than it is now and lower than at most other family-founded cable companies. AT&T shareowners will have 61% of the vote and 55% of the economic interest in the combined companies. The majority of the directors on the new board will be unaffiliated with the Roberts family. The merger of AT&T Broadband and Comcast is in the best interests of both companies' shareholders and will bring much-needed choice in local phone service to more than 38 million households passed by its cable systems. The new company's telephony footprint will have national reach, and its scale will allow it to develop and deploy new broadband applications such as video-on-demand and high-speed data.

Finally, long-distance revenue is declining across the industry, but few would call our consumer profit margins--26% of revenue last quarter-- "slender." In fact, they are more than six times better than our largest competitor's. After AT&T Broadband spins off and merges with Comcast, AT&T will have one of the strongest balance sheets in the industry, with debt BusinessWeek itself has estimated at $17 billion, far less than major competitors worldwide. And while stand-alone long distance will continue to shrink, last year the new communications-services businesses we invested in grew at double-digit rates, and AT&T Business got more than half of its revenue from nonvoice services for the first time in its history.

It's easy--and even popular in some quarters--to take gratuitous swipes at CEOs like Mike Armstrong who have to make tough decisions without the benefit of 20-20 hindsight. But Armstrong anticipated the capital crunch that would hit the telecom industry and restructured AT&T into businesses that could stand on their own. It was not a popular decision at the time, but because he made it, AT&T shareowners, customers, and employees are far better positioned than those of our competitors.

Richard J. Martin

Executive Vice-President


Basking Ridge, N.J.

Editor's note: We agree that the net cost for TCI and MediaOne was much less than the $97 billion cited by Kuttner, but AT&T has not disclosed enough information to make a precise calculation of how much of an offset there was from asset sales. Some analysts believe AT&T lost at least several billion dollars on its original investment, especially if capital investments are added in.

In saying that on a cost-per-cable-subscriber basis, AT&T paid double their market worth, Kuttner relied on research from Consumer Federation of America. BusinessWeek believes that AT&T paid a much more modest premium.

As for synergies, yes there are some. But we believe the record shows that AT&T itself set higher expectations for its synergy strategy than Martin's letter suggests.

We agree with Martin that a combined AT&T and Comcast would have about 21 million subscribers, not including AT&T's 25% share of Time-Warner Entertainment's cable business. Kuttner included the Time-Warner stake in his market share calculation.

There are many ways to calculate compensation. BusinessWeek's survey put Armstrong's total pay in 2001 at $9.4 million. This does not include the value of any unexercised options granted in 2001 or earlier, nor any stock-appreciation rights--worth millions more, depending on the valuation used. The $17.2 million cited by Kuttner, which came from AT&T's 10-K statement, included stock-appreciation rights. Kuttner erred in describing 1 million options awarded to Armstrong as additional compensation in 2001.

Kuttner should also have clarified that the $32 million valuation he placed on 1.4 million options granted in 2002 assumed that AT&T's stock would increase 10% per year over the 10-year life of the options.

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