Up until a few years ago I lived in midtown and from our building’s roof garden I often waved to my reflection on the side of the Crystal Palace on Third Avenue. At the time I often wondered where the loud-talking Staten Islanders collapsing under the influence of multiple margaritas at my local Mexican restaurant, Zarela’s, got their money. One night I discretely drew the attention of Winston the barman to the act of copulation taking place on a stool in the bar, which was so crowded that you would only notice what was happening if you were right next to the happy couple. I assumed then that this crowd was NYPD, since it seemed they could get away with anything.
That assumption changed when I read Gary Weiss’s book, Born to Steal: When the Mafia hit Wall St. It seems the group whiling away the hours at Zarela’s were really cold-callers and pseudo-brokers based in the Crystal Palace, who were letting off steam after a busy day of screwing widowers and orphans out west who thought that all you had to do to live happily ever after was to close your eyes and say IPO three times.
Weiss’s tale of how a bunch of crooks sold investors millions of dollars of worthless stocks, whose value they pumped and churned relentlessly, left me shocked. Just imagine the sheer chutzpah of a broker telling investors that companies showing no profits or assets other than some rudimentary paperwork filed with the SEC would be worth untold millions.
Actually, I was more taken aback by how Weiss’s story tracked my own movements around Manhattan. Apart from the Crystal Palace, one of the Soprano pseudo-brokerages hosting Weiss’s ‘hero’, Louis Pasciuto, was located in the Battery Park building that IR magazine occupied until 1998. From midtown I moved to near South Street Seaport, where much of Pasciuto’s career development occurred under the malign influence of the Mob in the Fulton Street Fish Market. Even now, in my latest location on 30th Street, I’m close to yet another of the offices from which Pasciuto siphoned off cash by the bucketful.
But enough about Manhattan real estate. The real point of Weiss’s engaging story is that these places operated with relative impunity. The National Association of Securities Dealers fired one of its few inspectors who went after these Mob-backed houses. He was, they said, not a team player. One can only guess who else was on their team. The SEC stayed out of it all. And it was only toward the end that the FBI drifted into the case, more because of the good karma from Mob-bashing than any particular outrage at the wholesale pillaging of retail investors.
The Speculator continues to inveigh at how often financial markets operate as a huge cash and stock churner where everyone ‘makes’ money except individual investors. Brokers seem to exist only to sell stock and earn commissions, not to ensure the safe and prosperous retirement of their clients. And analysts have behaved like snake oil advertising copywriters. If their employers’ primary concern was to raise capital for industry, then they would get the best prices right at the launch of an IPO, not run it up to the stratosphere afterwards then let it crash when the mom-and-pop investors are the only ones left holding it.
Too many financial market firms have been engaged in a conspiracy with corporate executives against the interests of America’s shareholders and employees alike. As Weiss points out, Pasciuto thought he needed to be an Ivy League MBA to get to the ‘real’ Wall Street, but he had actually been there all along.
The wise guys caught in the cleanup of the chop houses and boiler rooms will spend a lot of time on the inside while, sadly, Arthur Andersen’s management may be reemployed in similar positions elsewhere. What Wall Street needs is a robust and vigorous enforcement agency that will put some real fear into the barons of banking and captains of industry.
Maybe it’s time for pension funds, other institutions and NAIC to get together and hire some real muscle. In the old days before the FBI became so ratty about the competition from the Mob, gangsters weren’t necessarily so bad for investors. Didn’t the Teamsters’ pension fund get a far better return on its investment in Las Vegas than Enron employees got from their 401Ks? The guys really had a nose for the business, and could be quite persuasive. If they started dropping in to visit some of the greedier CEOs and bankers, I foresee a far more salutary effect than the threat of a negotiated-without-prejudice settlement with the SEC.
