Friday, October 18, 2002

I picked Jack Grubman to search because he embodies the '90's and what happened to some prominent actors from that period. In the '90's, he had the influence, fame, money and status that many people aspire to. In the 00's, he has the kinds of troubles that arise out of his own behavior and the "kick 'em while they're down" attitude of some regulatory officials. In the '90's, Grubman was influential and he made a great deal of money. It was no secret on Wall Street that an analyst risk his or her livelihood to advise a customer to any particular stock. It was no secret that a brokerage house's best customers got the most favored IPO stocks. Who did all these regulators think got those allocations? When a brokerage house has post-season Yankee tickets, they go to the brokerage house's best customers. That's not corruption in any traditional sense. When the brokerage house had IPO shares to allocate to someone, why not allocate them to the best customers? The tax law says the tickets are not deductible if they go to the chairman's mother-in-law. To be deductible, the ticket has to promote business. Congress encourages this sort of behavior through the tax law. There are two differences. First, the broker pays for baseball tickets, while the issuer and the general public pay for the benefit that comes from the IPO stock allocation. Second, as expensive as Yankees tickets are, the amounts involved with IP stock allocations are substantially larger. Earlier this week I heard an NASD enforcement executive talk about the rule against gifts in excess of $100. Who is he kidding? Dinner and a show are worth more than $100. The cost of dinner and a ticket to a Knicks game exceeds $100. Now, anyway, Grubman is under investigation by various regulatory authorities, if newspaper accounts are to be believed. He might well lose his livelihood. The regulators are displaying a "kick 'em while they're down" attitude. It was no secret that the best customers got the IPO share allocations, but such a practice merits regulators' attention only when the businesses are already down (in a reputational sense, at least). The regulators could simply announce that allocating IPO shares to executives of companies that the broker hopes to do business with will henceforth be deemed an unfair trade practice or constitutes a bribe or an impermissible gift. However, rather than look to the future, the regulators want to punish somebody. This situation is like the Arthur Andersen problem. The behavior that the regulators now say is wrongful was a substantial part of the "normal" business of the entity. Behavior like this (unlike the accounting frauds at Worldcom or Enron) was not a secret. The compensation systems at companies like Salomon Smith Barney or Arthur Andersen rewards employees who bring in revenue. That organizational imperative was not hidden from regulators. If the regulators now punish the whole entity, as with Andersen, many individuals who were not part of any particular situation suffer. On the other hand, if an employee is involved in a traffic accident while performing work-related driving the employer is liable. How could it be different for a huge lapse in professional judgment? If the regulators punish the whole entity, the punishments fall on many regular employees who derived no particular benefit from and played no role in the professional lapse. Think of all the support personnel at Arthur Andersen who are now unemployed. On the other hand, the regulators have a hard time finding and pinning responsibility on all those who had a hand in the behavior that the regulators now disapprove of. Grubman maybe takes the fall for the whole entity. On the third hand, the public owns an entity like Salomon Smith Barney. If the regulators punish a publicly held entity, the real cost comes out of the public, not out of the guys who actually derived personal pecuniary benefits from this greedy behavior. So how does the SEC or the NY Attorney General punish the bad actors only but all the bad actors? Three years ago, Grubman was employed for his telecommunicatios expertise. Now, as I understand it, he is unemployed. That is the story of thousands of telecommunications workers, too. They are not typically under investigation, but their unemployment is no less real. Three years ago, Grubman was an employee working hard to generate revenue for his employer, in line with the practices of the employer. Many laid-off workers were in that position, too. In fact, apparently, under the norms in effect at the time, Grubman was a successful revenue generator. However, when hard times came, employers laid off plenty of productive workers. In these ways, at least, Grubman embodies the end of the 20th Century. That's why I went looking for his name by means of search engines on the Web. Noel Humphreys 10:09:16 PM    comment []

Using Galaxy.com, I searched the name Jack Grubman, without quotation marks, and Galaxy said it found 1 hit. Here is that one link shown in the results: http://www.animaux.net/stern/bio.html It is a profile of Howard Stern, the radio shock jock. The URL http://www.stockfraudlawyernetwork.com/ showed up under "featured links," but that is apparently a paid link. Using Alltheweb.com, I searched Jack Grubman without quotation marks, and the search found 30,261 web pages. The first and sixth references were in German, but there was a choice on the site to choosing English-language references. Here are the first half-dozen: 1. http://www.computerwoche.de/index.cfm?... (it's in German) 2. http://news.findlaw.com/hdocs/docs/worldcom/70802jgtst.pdf (568 B) 3. http://www.fortune.com/(the Fortune magazine home page, which did not have a Jack Grubman reference that I saw on October 18) 4. http://www.investor.nasd.com/(One of the NASD's home pages, and I couldn't find the reference to Grubman) 5. http://www.webprowire.com/summaries/159599.html (an up-to-date reference to Grubman's activities) 6. http://www.cowo.de/index.cfm?pageid=254&artid=40956 (an up-to-date reference page, but in German) The first half-dozen references to Jack Grubman at nytimes.com were these on October 18, 2002: BUSINESS | October 15, 2002 New York State Says Citigroup Had a Conflict: http://www.nytimes.com/2002/10/15/business/15TELE.html By REUTERS BUSINESS | October 12, 2002 Goldman Wooed a Star Analyst, Documents Show: http://www.nytimes.com/2002/10/12/business/12WALL.html By PATRICK McGEEHAN BUSINESS/FINANCIAL DESK | October 10, 2002, Thursday $ Citigroup Removing Officials From Salomon Unit: http://query.nytimes.com/search/abstract?res=F30B17FA3D5E0C738DDDA90994DA404482 By RIVA D. ATLAS MAGAZINE DESK | October 6, 2002, Sunday $ City of Schemes: http://query.nytimes.com/search/abstract?res=FB0614FB385D0C758CDDA90994DA404482 By Kurt Andersen BUSINESS/FINANCIAL DESK | October 3, 2002, Thursday $ Market Place; Top Regulators Meet and Plan Unified Effort On Wall: http://query.nytimes.com/search/abstract?res=FB0B16FF355C0C708CDDA90994DA404482Street By GRETCHEN MORGENSON BUSINESS/FINANCIAL DESK | October 2, 2002, Wednesday $ 2 Outside Ties Cut by Chief Of Citigroup By RIVA D. ATLAS 9:22:03 PM    comment []

The Ronettes wish they had had a lawyer as good as Ira Greenburg in 1963. "Ronettes' Profits Limited by 1963 Contract" Thanks to New York Law Journal Here's what the Law Journal online newsletter said: "The Court of Appeals denied a pioneering "girl group" trio, the Ronettes, millions of dollars in profits from the synchronization of their work Thursday. In a 5-0 opinion, the Court said the members of the group are bound by the terms of a contract they signed without benefit of counsel when they were obscure teenagers from Spanish Harlem." Here's some of what the New York Court of Appeals (NY's highest court) said: "The pivotal issue in this case is whether defendants are prohibited from using the master recordings for synchronization, and whatever future formats evolve from new technologies, in the absence of explicit contract language authorizing such uses. Stated another way, does the contract's silence on synchronization and domestic licensing create an ambiguity which opens the door to the admissibility of extrinsic evidence to determine the intent of the parties? We conclude that it does not and, because there is no ambiguity in the terms of the Ronettes contract, defendants are entitled to exercise complete ownership rights, subject to payment of applicable royalties due plaintiffs. "New York has well-established precedent on the issue of whether a grantor retains any rights to artistic property once it is unconditionally transferred. In Pushman v New York Graphic Soc. (287 NY 302 [1942]), for example, this Court considered whether the common law permitted an artist who unconditionally sold a painting to enjoin the owner from making reproductions of the artwork. Citing numerous authorities for the proposition that the unconditional sale of a work of art transfers all property rights to the buyer, we held that the defendants could reproduce the painting because "an artist must, if he wishes to retain or protect the reproduction right, make some reservation of that right when he sells the painting" (id. at 308). A broad grant of ownership rights, coupled with the absence of a reservation clause, was similarly dispositive in Burnett v Warner Bros. Pictures (67 NY2d 912 [1986], affg 113 AD2d 710). In that case, the plaintiff had assigned all of his rights in a play that was later adapted into a movie, "Casablanca," and subsequently led to the defendant's spinoff television series. We affirmed the Appellate Division's conclusion that if "the plaintiff intended to retain certain rights, specific clauses to that effect should have been included in the agreement" because the parties' contract assigned "all imaginable rights" to Warner Brothers (113 AD2d at 712-713)." Here are two suggestions that might be said to come out of this decision; these lessons are not just for recording artists, but any person who conveys away rights in copyrighted works. First: Contracts for copyright-protected works can have long-lasting and unexpected effects. Second: The contract was two pages long. Since the contract was silent about other technologies, and the contract conveyed ownership of the master recordings to the record company, the record company was free to grant "synch" licenses and otherwise exploit the Ronettes' recordings, even though use of songs like "Be My Baby" for advertising was clearly outside the expectations of the Ronettes at the time the parties entered into the agreement. Here's the lesson: Don't skimp on the contract language. Get a lawyer and try to envision future uses of a copyrighted work. Deal with that when the contract is first formed. Later, it's too late. Of course, for beginning recording artists, it's hard to have enough leverage or courage to spend money on lawyer time to bargain with a powerful record company. Here's what the court said: "In this case, plaintiffs concede that defendants own the master recordings. Notably, the agreement explicitly refers to defendants' "right to make phonograph records, tape recordings or other reproductions of the performances embodied in such recordings by any method now or thereafter known, and to sell and deal in the same" (emphasis added)." The court said the contract contemplated later-developed technologies. Ira Greenburg represented them ably in trying to overcome enforcement of their contract from 1963. The Ronettes started this litigation almost 15 years ago. Litigation takes a long time. Here's a news report about the decision: http://tm0.com/LAW/sbct.cgi?s=498088435&i=658799&m=1&d=3265773 8:28:21 AM    comment []

The Havana Club Rum dispute reportedly delayed the US's joining the international program for registering trademarks around the world by means of a filing in the home country office of the trademark holder. That dispute is now back in the news. Thanks to the New York Law Journal newsletter: "Bacardi and Bush" Miami Daily Business Review "Florida Gov. Jeb Bush and his staff lobbied federal agencies for months on behalf of Bacardi in a trademark dispute while the rum giant funneled thousands of dollars to the state Republican Party and the governor's re-election campaign. Dozens of e-mails from the governor's office, disclosed in the wake of a public records lawsuit filed last week by the Florida Democratic Party, mark a trail of Bacardi's efforts to obtain Bush's help." http://tm0.com/LAW/sbct.cgi?s=498088435&i=658799&m=1&d=3265784 Here are some sites that discuss the dispute: http://csmail.law.pace.edu/lawlib/legal/us-legal/judiciary/second-circuit/test3/99-7582.opn.html http://europa.eu.int/comm/trade/miti/dispute/hc.htm http://www.cocktail.com/news/2000/july/july2800.htm http://www.havana-club.com/uk/conflit.html http://abcnews.go.com/sections/world/DailyNews/cuba010323_bacardi.html http://www.eurunion.org/news/press/2001/2001060.htm http://www.ciponline.org/cuba/newsarchives/october2000/ap100200bacardi.htm http://www.house.gov/judiciary/42011.htm 8:26:56 AM    comment []

© Copyright 2003 Noel D. Humphreys.