The Wall Street Fix
homeworldcomfixing the streetdiscussionblank
photo of downtown manhattanjoin the discussion: What have we learned from the Wall Street scandals of recent years? What can, and should, be done to restore the public's trust?


May 9, 2003

From Leah C. Johnson, Director of Public Affairs/Corporate Affairs, Citigroup Inc.:

To the producers of Frontline:

Last night's Frontline, "The Wall Street Fix," addressed a legitimate issue, but did so in a way that was distorted and highly misleading to the viewing public.

We acknowledge that certain of our own activities, in hindsight, were not consistent with how we believe business should be done. But the manner in which the producers have twisted previously reported events to shape a "story line" isn't of service to investors or anyone else. Fuzzy timelines and innuendo are employed to support otherwise baseless assertions and connect unrelated events. Further, the program lacks any recognition that WorldCom is widely understood to have secretly perpetrated a massive fraud detected by no one -- including Citigroup.

Common journalistic courtesy should have led producers to disclose that two of their key "experts" are ex-Solomon brokers pursuing meritless lawsuits against the company. Just today, The Wall Street Journal reported that the New York Stock Exchange is accusing one of these individuals of failing to cooperate with an investigation and seeking a fine and his suspension from the securities business. The other was fired from the company for policy violations.

Over the last year, Citigroup has taken numerous steps to raise business practices and corporate governance standards -- not just in the businesses under scrutiny, but throughout our company. These initiatives are designed to help prevent recurrence of any activities that did not meet our standards and, in doing so, help restore investor confidence in our market system.

Many investors lost money after the telecom bubble burst -- that's a painful reality. We at Citigroup will continue to do what is required to restore investor confidence, now and in the future.


Leah C. Johnson

Leah C. Johnson

FRONTLINE's editors respond:

On behalf of the FRONTLINE producers responsible for "The Wall Street Fix," I am responding to your May 9th correspondence.

In your letter you made several vague criticisms: that we "twisted previously reported events" and employed "innuendo" to make "baseless" assertions. We disagree. Our reporting was carefully sourced, rigorously fact checked, and met the highest journalistic standards. We stand by its accuracy and fairness. On the two specifics you raised, we believe you are mistaken.

You charge that we failed to note the accounting fraud at WorldCom. On the contrary, we did report it. We showed Mr. Grubman's testimony before Congress in which he denied seeing any "red flags" despite his detailed knowledge of and active role in WorldCom's business affairs.

You say we failed to tell viewers about the lawsuits filed by ex-Salomon brokers Mr. Spartis and Mr. Chacon, against Salomon. Not true. We mentioned their dismissals as well as their suits in the narration, giving viewers this information. It was disclosed. Although you term their lawsuits "meritless," we believe that's a matter for the courts to decide. Also, I might add that you did not deny any of the specifics in the stories they told in the broadcast.

In closing, let me assure you that FRONTLINE would have welcomed the chance to interview Mr. Weill, Mr. Rubin, or any other veteran senior executive at Citigroup on-camera and on the record. There are still many unanswered questions about what these gentlemen knew of Mr. Grubman's activities, the IPO allocations, the special loans, the conflicts of interests, Citigroup reforms, and other matters. Answers to those questions are, in our view, an important part of the process of restoring investor confidence.


Louis Wiley, Jr., Executive Editor, FRONTLINE


Your excellent show was fulfillment of one of the major requisites of a healthy democracy providing us with information we need to make decisions. Youve shown that complex issues can be presented in a way that people who are not experts and dont have a lot of time can understand.

You have done your part, I would hope that now the viewers will take that information and become active citizens. It isnt enough to ask why Eliot Spitzer didnt prosecute Weill. We must raise a hue and cry so our elected representatives know that we arent satisfied: we want crooks to be in jail - not benefiting from their crimes and living in luxury; we want Glass-Steagall reinstated; we want regulation or at least oversight so that it wont happen again.

Our representatives and senators must know that our informed votes will elect and re-elect them not large campaign contributions. They and we must break this every decade cycle Bebe Rebozzo, penny stocks, Savings and Loan fraud, stock/bank investors.

Vicki Black

FRONTLINE's editors respond:

For those who want to make their voices heard on this issue, let your congressman know, as well as the appropriate committee chairmen in the Congress who have jurisdiction in this area: the Senate Banking Committee chairman is Richard Shelby, R-Ala., and the House Financial Services Committee chairman is Michael Oxley, R-Ohio. Shelby is sympathetic to taking some action to tighten controls on the New York Stock Exchange and the NASDAQ. You may also contact William Donaldson, the new chairman of the Securities and Exchange Commission.


Excellent program, which raised two important questions in my mind: A Can brokerage firms & the stock brokers who work for them be trusted again? B Are CEO's becoming more forthright & trustworthy now because of the CEO fall out from Worldcom, Enron & Tyco?

Wish Frontline would focus just on business & finance to examine all that's wrong out there today. Keep up the great work.

Aaron Koral


Does Wall Street Get It?

The day before your show The Wall Street Fix aired, the Senate Banking Committee conducted a hearing on the settlement with Richard Grasso, Elliot Spitzer, William Donaldson and other regulators. Toward the end of this hearing, which can be seen on the C-SPAN website, Mr. Grasso made the comment, If people fail to get it they wont be in the business. Senator Shelby then concluded the meeting by emphasizing to the C-SPAN audience that Mr. Grubman and Mr. Blogget would not be able to work in the securities industry again.

My comments relate to your broadcast and the comments of your viewers juxtaposed against this Senate Banking hearing on the same matter.

First, it seems that the only people who really get it though are your viewers and the American public ex-Wall Street/Congress. Does Grubman really care about working in the securities industry again when he can go back into the telecommunications industry from whence he came and make a multi-million dollar compensation package? Does he really care about paying a $15 million fine when he admitted that he made $20 million in the last four years before getting caught? Oh, and dont forget the $30 million separation package that Sandy Weill rewarded him as a parting gift.

The common theme though among commentators on this site is that the system is corrupt to the core and that all of the major players need to do SERIOUS jail time and disgorge their the money made while perpetrating these frauds on the public who lost $4 TRILLION IN MARKET CAPITALIZATION!

We the people HAVE to be vigilant; we must educate ourselves on how the system works and DEMAND that Congress make massive structural changes to the way the markets are regulated. At the very least we must start shaming the executives of these companies and Self-Regulatory Organizations NYSE and others. What is at cost if we dont is our retirements and the very financial security of the nation. One organization that is doing this now is the National Association of Investment Professionals which has asked for Richard Grassos resignation. See their website at

The second observation I would like to make is that your viewers seem at a loss as to how all this could have happened. First, lets look at how the Securities and Exchange Commission arose out of the 1929 crash. This is from John Kenneth Galbraiths The Great Crash, which appeared in 1954 and laid out just how things got so out of hand in the 20s and why almost nobody noticed until it was too late.

To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street are nearly always silent. The foolish thus have the field to themselves. None rebukes them. There is always the fear, morevover, that even needful self-criticism may be an excuse for government intervention. That is the ultimate horror.

So someday, no one can tell when, there will be another speculative climax and crash. There is no chance that, as the market moves to the brink, those involved will see the nature of their illusion and so protect themselves and the system...

There were some enlightened individuals working in the industry in the 1930's who did rebuke the evildoers. In fact, the founding fathers of securities regulation confronted an industry that was very similar to conditions of today.

Historically, the breadth of the SECs jurisdiction and the vagueness of pivotal provisions of the Commissions enabling statutes have contributed to the SECs relative inattention to accounting and corporate governance. Lack of commissioner expertise has contributed to the SECs passivity in such fields as accounting. Lacking commissioners with training or interest in the accounting field, the SECs Office of Chief Accountant, consistently underfunded and understaffed, has not made studies of leading accounting problems, and has rarely proved able to attract outstanding theorist.

... I maintain, the securities industry has successfully lobbied Congress to underfund the SEC so that it has been unable to perform its duties according to its mandate - to be the investors advocate. I find it humorous that the same politicians who helped create a weak regulatory environment are now grandstanding in the recent Congressional hearings related to Enron. They now claim that securities laws must be revisited, and they must be tightened so future Entrons can be prevented. These are the same politicians the same conservative, penny pinching but pound foolish windbags who gave into Sandy Weill, and the powerful members of the SIA in the early to mid-1990's which made the SEC into a starving, weak child, incapable of doing anything except Securities Regulation 101. You folks know who Im talking about. They are the usual suspects: Phil GrammTexas, Billy TauzinLA,, Richard BakerLA, and Oxleys new go-to-guy, Vitto Fossella of New York.

A law which I think was a primary cause of Enron was the Private Securities Litigation Reform Act which Congress passed in 1995. This law was part of the Republican Partys Contract with America. Not only did it sharply cut the budgets of government agencies we are now saying were responsible for allowing the terrorist to attack us on September 11, 2001, it also created laws that protect corporate advisers from shareholder or employee lawsuits.

This bill was suppose to curb investor lawsuits in the high-tech industry but in reality what it did is make it very difficult if not impossible for shareholders to prevent an Enron-like debacle before it happens when there are suspicions of fraud. What creates this difficulty? One clause of the law requires a plaintiff to present details giving rise to a strong inference of fraud before they can demand documents in discovery. Before this law the plaintiffs lawyer could be more ambiguous, and for good reason. Often shareholders or lawyers didnt know exactly what they were looking for, but this law requires exact detail. The renowned professor of law at Columbia Jack Coffee was quoted recently in the Wall Street Journal that the taken together, the two rules are a Catch-22: You cant get discovery unless you have strong evidence of fraud, and you cant get strong evidence of fraud without discovery.

After the bubble burst, but before Enron imploded Senator Phil Gramm as Chair of the powerful Senate Banking Committee, teamed up with his buddies at the SIA in an effort to review and reform of the SEC laws and regulation of the securities industry. Mr. Gramm was also quoted in the May 14, 2001 issue of Investment News that current laws place a heavy regulatory burden on the securities industry.

According to Gramm those laws were only created because people didnt have good information on pricing. I mean really, how inane can a man be who supposedly has a Ph.D., in Economics? Those laws were created for a multitude of reasons, pricing being the least of these. They were created to prevent the same fraud and conflicts of interests that weve seen at Enron - and will exist into perpetuaty because of human nature. Unfortunately, Gramms and the boys so weakened the SEC these past ten years the SEC was unable to ENFORCE securities laws in a broad and effective manner. We can only assume Mr. Gramm got stupid because his wife was on Enrons Board of Directors and was rubber-stamping the 3000 partnerships which robbed Enrons employees and investors of billions. One thing Gramm was smart about was not to run again - he saw the writing on the wall last spring. Hopefully, the people of Texas will elect someone who truly has their interest in mind, and not just the elites who run large corporations.

As recently as 1965, only 10.4 percent of American household owned stock either directly or through mutual funds. By 1997, that number had more than quadrupled to 43 percent. Increased ownership has helped jettison the market from a mere 1100 in 1983 to over ten times that number. Money raised in new offerings per year has gone from only $58 billion in 1980 to over two trillion in 1999. To accommodate this growth the number of Series 7 registered people has climbed from 196,000 to over 650,000. Daily volume has soared from 500 million shares traded a day in 1993 to close to 2 billion a day currently. One can see that the markets have become more complex, if for no other reason, than its sheer size.

Professional staff at the SEC are paid close to 30% less than other government agencies. The good ones stay a year or two and then move on to Wall Street or the big law firms that work for the major brokerage firms. This is exactly what the large broker/dealers want. The rookies are constantly calling former bosses for guidance on rule making before they hit the revolving doors themselves for greener pastures.

The Section 31 fees fees the SEC charges companies for IPOs and transactions use to be 1/300th of 1% On a $30,000 this would be $1.00, brought in $2 billion in 2001. Yes, this went into the general revenues, but Im sure that the brain-trust in Washington could set up a mechanism in which these fees would fund the SEC and only the SEC. The SROs should be eliminated. They are the fox watching the henhouse. And the new SEC should have a budget that equaled the Section 31 fees in year 2000 $2 billion. Any fees above their current budget could be saved during times like this when transactions are down.

The only problem is our aforementioned Mr. Gramm, ever the friend of Wall Street, and Mr. Oxley, got these fees reduced a few years agoclaiming that they Are a very heavy tax burden on people who try to build up saving to send their children to college, to retire or to provide for their future. Heres a flash Mr. Gramm - A much bigger burden is losing your retirement fund altogether because of poor regulation. Mr. Gramm estimated that the average person would pay $1,300 in excessive fees over a 45-year work cycle. Thats $29 a year folks! Do you think the Enron employees ironically Gramms constituents, would be more than happy about paying $29 a year to better fund the SEC to police the bad boys of Enron, or lose the billions in their retirement accounts Mr. Gramms was just referring to?

Finally, what can YOU do to create an industry which protects your clients and yourself? Write to your Congressman and tell them how you feel. If you think that Ken Lay and the boys should have their assets seized and be thrown in jail for the rest of their lives - TELL THEM! This kind of penalty would be the best deterrence but would never be enforced because the SEC under Mr. Pitt didnt even perform a surprise raid on the Enron and Andersen offices. Instead, they gave them a two week warning which gave them time to destroy documents. Better yet, tell them your own personal story about what youve seen in the industry and how you think it should change. Remember, YOU are the government. You cant complain if you dont try to change it. If you are tired of analyst conflicts , getting sued for bad analysts calls, and not getting any IPO allocations to boot, then vote with your feet by walking. Pull your accounts from the firms that continue to NOT GET IT.

Thomas O'Keefe


i'll never buy another american stock.

roy chadwick
vero beach, florida


A fantastic piece!I am very grateful for all the work your staff does in shining a light on the corruption in our society. America is a great country primarily because we have the freedom to expose the people who attempt to exploit others by corrupting our institutions.

I had put the mess out of my mind until I saw your show and now I'm mad as hell again. A few mad people will not make a difference particularly when the publics' attention is distracted by a new shockingly appalling event almost daily. Do you have any ideas how the viewship might congeal into a potent political force?

Barry Miller
Kennesaw, GA


One of the biggest crimes committed is that New York State was paid off settled for $1.4B, instead of pursuing criminal prosecution.

What would be more effective in stopping this sort of fraud, $1.4B of stockholder's money being paid to pension funds, or seeing Sandy Weill, Bernie Ebbers and Grubman in Prison Pinstripes?

What is most distressing is that this is just one example of hundreds of companies that "rode the bubble" and have cost us not only trillions of dollars, but seriously eroded America's confidence in not only the investment community, but the judiciary as well.

David Barton


This program was a totally ONE-SIDED hatchet job! There was clearly NO effort at all to weigh both sides or even just to get all the facts out. No question that it was heavily biased against Wall Street and the Street players from the start to finish.

Smith interviews some restauranter who claims he lost money because of a stock rating. Excuse me but when was the day that Americans were told they didn't have to think for themselves anymore? I must have missed that. That's right I forgot. In Clintonized America - no one was responsible for their own actions anymore. Maybe the truth is that some guy got greedy and invested his whole wad in telecom and now wants to blame someone else when his investment tanked.

America is the number one top dog in the world today precisely because of guys like Sandy Weill. Guys who dream the big dreams and then go out and build them. He has created enormous amounts of value for his shareholders and done major works in the field of medical charity. And Sandy committed NO CRIME! It was outrageous on Smith's part to insinuate that Sandy was somehow culpable in a crime and got away with it. It was false and totally outrageous!

I was very disappointed at the poor quality of this program. Normally Frontline does a much better job than this. This smear job was one of Frontline's lowest moments. .

Sven Parnell
Orlando, Florida


"Wall Steet Fix" is reminiscent of the great industialist -robber barons of the 1900 century. More recently, it brings to mind the Savings and Loan debacle twenty some years ago. The losses in the billions is just beyond comprehensible to the average citizen.

Equally incomprehensible is the fact the guilty are not prosecuted rather they are rewarded by their peers. It's mind boggling.

Robert Yee
Chicago, IL


As bad as the WorldCom debacle was, the true crime that was perpetrated on the investing public was the failure of Eliot Spitzer to prosecute. I can accept that greed rules Wallstreet, and that it has no concern for the public interest. But resposnibility for the public interest is exactly what Spitzer was appointed for and he failed MISERABLY. New Yorkers need to get another Attorney General.

c. Breiding
los angeles, ca


The morning after watching your show I tranfered my IRA account out of Soloman Smith-Barney. I lost several thousand dollars in WCOM stock. That is not the end of the world and I do not expect anyone to cry for me. But I refuse to do business with pirates in pin-striped suits.

Cynics may say, "let the buyer beware", but I do not believe that principle can ever be used to excuse fraud and deceit.

My first stock broker advised me to invest in what I know. Thank you for helping inform me about what I did not know. I will now choose to invest in ways closer to home.

Cliff Chisholm
Bozeman, MT


I am surprised that you did not followup with what has been going on with the Worldcom's bankruptcy.

Under chapter 11 everyone has rights except the shareholders. Worldcom went into bankruptcy with $85B

in assets but recently wrote off $45B of that which was basically exactly all the shareholder's equity.

How does the government allow our accounting standards to provide for such an obviously flawed balance

sheet. The law that congress passed last year will not solve this fundamental problem which is so

important to investors.

MCI will soon emerge from chapter 11 in great financial condition with a new highly paid CEO,

many of the same employees with new valuable stock options and new profitable banking business

for many of the same banks you discussed in your report as participating in the scam. Why should

investor's trust such a system or the government's role in providing for such a process.

If worldcom can get rid of huge debt load just by cancelling shareholders and come out with a very clean

picture then probably other telecommunication giants with huge debt load will follow their path to get rid of

shareholders by filing a intentionaly chapter 11. What a great system !!!

Debangshu Dutta
Fremont, CA


Frontline, Congradulations on a job well done. Now I would like to see a follow up by you to bring viewers up to date on the continuting "WorldCom Scandal". You made the point that Citibank participated in the investor fraud with WorldCom. But did you know that in the current "Reorganization Plan" presented by Michael Capellas new WorldCom CEO to the Bankruptcy Court, that Citigroup will walk away with substantial ownership in WorldCom "post-bankruptcy" via a "debt for equity swap"? Thats right!

Go to "" and read the court dockets for yourself, the "new" WorldCom CEO has proposed handing over the company ownership to the very same people who perpitrated the fraud in the first place. This same "reorg" plan gives current WorldCom stockholders and employees absolutely ZERO! All I can say is "meet the new boss, same as the old boss"

Current WorldCom Employee

Basillio Apodaca


A good show but you only give part of the story. Congress and the politicians suspiciously show only a half hearted outrage over the scandal and the slap on the wrist for these hi priced corporate terrorists. And where was the SEC?

As long as the cop is asleep - as your show contends, or is being payed off, we will continue to see more Wall Street schemes until we have decimated corporate capital America.

Eric Lord


Thank you FRONTLINE for being the only objective media outlet in this corporate corrupted world.

How can any democratic government repeal a Glass-Steagal Act and allow a bill like Telecommunications Act 1996 that continues to let these companies get bigger and bigger? What kind of human being is impressed with a Sandy Weill? Uninformed Americans who look to these heartless people as some kind of "financial hero" are at root the cause of the problem.

How can Sandy Weill stand on the floor of the stock market and give himself credit for being such a great business mind for lowering his annual salary $12 million dollars a year to $42 million dollars a year? How can we patronize Sandy Weill by naming him "CEO of the year" in business publications? It's wrong, and makes my stomach cringe. When the Worldcom scandal first camre to light, I thought Bernnie Ebbers was to blame. After the show, I realized he was just a "yes man" to Jack Grubman and Sandy Weill. He tried to sell his stock and he was discouraged. He wouldn't be in as much trouble if he could have sold his stock the times he tried. Weill and Grubnman are the real villans here. Ebbers is no saint, but he sure isn't the devil. He was conned not to sell to allow Citigroup to make miserable profits off banking fees. The real crime is that bank subidiaries are allowed to solicit stocks. This country needs Teddy Roosevelt style trustbusting. Since Weill and Grubman are not in jail, it doesn't look like that will happen any time soon.

James Knowles
Memphis, TN


The question you left uninvestigated is:

Who fixed State Attorney Spitzer?

What were the pressures on him not to prosecute the arch criminals of the Wall Street fix?

A nettling omission.

Alvin Hofer
St Petersburg, FL



home » introduction » worldcom » fixing the street? » washington » interviews
discussion » producer's chat
tapes & transcripts » press reaction » credits » privacy policy
FRONTLINE » wgbh » pbsi

published may 8, 2003

web site copyright 1995-2014 WGBH educational foundation