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Friday, Sep 13, 2002 9:10 PM UTC

Pols and CEOs gorge at the IPO feast

It's time to impose new rules on the rich man's Shangri-la.

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Topics: Goldman Sachs, Wall Street,

The Loch Ness monster. Papal infallibility. Angelina and Billy Bob’s endless love.

To this collection of shattered modern myths we can now add the heavily hyped notion that, with roughly half the American population currently invested in the stock market, Wall Street has been “democratized” — that all of us are equally free to travel its level road to riches.

The truth is less egalitarian utopia and more rich man’s Shangri-la. The vast majority of American shareholders — 80 percent of us — control just 4 percent of the entire market, while the richest 1 percent of shareholders have portfolios brimming with a whopping 47.7 percent of the market’s total value.

The latest example of how the financial deck is stacked against the average investor is the revelation that banking behemoths like Citigroup, Credit Suisse First Boston and Goldman Sachs regularly doled out hard-to-get shares in hot IPOs to favored customers, among them corporate big shots and politicians.

Given the very cozy connection between Wall Street and Washington — “You scratch my back, and I’ll scratch my name on the front of a big, fat campaign check with your name on it” — it should come as no surprise that political insiders, some of them on congressional committees investigating these IPO practices, have been getting in on the ground floor of fast-rising IPO elevators for years.

Among the prominent politicians of both parties who were moved to the front of the line at the IPO feast: Sens. Barbara Boxer, Judd Gregg, Robert Torricelli, Jeff Bingaman and Fred Thompson; Reps. Nancy Pelosi and John LaFalce; and former senator Al D’Amato and former speaker of the House Tom Foley. This special access only reinforces the indubitable contention that corporate America and official Washington have grown far too close for the comfort of the rest of us.

The allocation of these goodies was no small perk. At the height of the tech bubble, when every morning seemed to bring another cash-gushing IPO — initial shares of Priceline.com, for instance, skyrocketed more than 300 percent in value on its first day of trading — being cut in on a hot IPO was like being handed the combination to Bill Gates’ wall safe, a stable boy’s pick in the featured race at Aqueduct, and the map to the fountain of youth. All on the same day.

Among those able to quickly cash in — or, in the parlance of the game, to “flip” — their IPO shares for big bucks was former WorldCom CEO Bernie Ebbers. He earned more than $11 million from shares in 21 separate IPOs allocated to him by brokers at Citigroup subsidiary Salomon Smith Barney, who were after WorldCom’s business.

Ebbers’ fellow WorldCom slimeball Scott Sullivan and former Qwest CEO Joe Nacchio also made it onto the VIP list at the very exclusive Club IPO. As did W’s dad, George I, whose $80,000 pre-IPO stake in now bankrupt Global Crossing ballooned to $14 million after the company went public. Democratic National Committee chairman Terry McAuliffe even did ol’ 41 one better, flipping his $100,000 pre-IPO Global shares into an $18 million windfall.

The IPO outrage is just another in a long list of examples proving that cleaning up the corporate stench that has been filling the air and the headlines for close to a year still remains to be done.

Instead of worrying about their investments, here’s what our leaders should be doing now. Not after the election. Not after a change of regime in Iraq. Let’s start by closing the loopholes that allow IPO favoritism to imbalance the financial playing field. And then let’s move on to treat stock options as the expense that they are, strengthen whistleblower protections, institute real reforms to regulate lobbyists and pension account managers, and make bridging the great wall between stock analysts and their investment banker cohorts illegal.

During the wild times of the late ’90s, IPOs were hailed as a modern manifestation of the American dream: Build a better mousetrap and the world will make you a market millionaire as soon as your company goes public. But now they have been revealed for what they really are — just one more way of trapping small investor mice for the fat cats.

Arianna Huffington is a nationally syndicated columnist, the co-host of the National Public Radio program "Left, Right, and Center," and the author of 10 books. Her latest is "Fanatics and Fools: The Game Plan for Winning Back America." More Arianna Huffington.

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