SAN FRANCISCO — In the heyday of the technology boom, any analyst, venture capitalist, investment banker or entrepreneur who didn't become filthy rich just wasn't trying. Greed wasn't merely good; it was the fuel that powered the system.
Last week's agreement between regulators and 10 top Wall Street firms aims to stamp out the things that greed inspired: conflicts of interest, sweetheart transactions, chicanery, lying and fraud.
Good luck, says a cross section of players and critics in Silicon Valley -- the place where the dot-com boom was born, nurtured and quickly exploited by natives and Wall Streeters alike.
Human nature is not easily re-engineered, these folks say, and well-meaning but toothless measures aren't going to help much.
"It's so sad that people think this is a remedy," said Ruthann Quindlen, a venture capitalist with Institutional Venture Partners in Menlo Park, Calif. "It changes nothing."
Said Gary Lutin, a New York investment banker who runs forums on dot-com excess: "The solutions seem artificial. It's sort of like needing water at the top of a hill, so you pass a law saying water should run uphill."
The exact nature of the new regulations, which are accompanied by $900 million in fines, remains to be detailed. But they will include forcing the brokerage firms to spend $450 million to hire independent researchers, presumably resulting in the objectivity that Wall Street pretended was there all along.
Also in the offing: a ban on having a firm's research analysts accompany its investment bankers on pitches, which is supposed to make sure that stock recommendations are untainted by the quest for banking fees.
A third regulation would prevent brokerage firms from giving shares in hot initial public offerings to their big clients, a practice known as spinning.
IPOs occurred at the rate of about two a week in Silicon Valley during the second half of 1999 and the first six months of 2000, providing enormous fees to the bankers, paper riches to the entrepreneurs and, through spinning, quick fortunes to Valley executives who already were vastly wealthy.
"They were bribes," said Quindlen bluntly, and very lucrative ones when a hot stock could double, triple or quadruple on its first day.
Last week Margaret Whitman, chief executive of San Jose-based EBay Inc., resigned from the board of Goldman Sachs Group. Two months ago it was revealed she had received shares in more than 100 Goldman IPOs. EBay is a Goldman client.
A spokesman said Whitman had done nothing wrong but was resigning to remove any appearance of a conflict of interest.
Other Goldman clients in Silicon Valley who have been beneficiaries of spinning, according to congressional investigators are EBay founder Pierre Omidyar and Yahoo Inc. founder Jerry Yang.
Spinning, as some critics have pointed out, already was prohibited under the "corporate opportunity" doctrine, which holds that an officer of a corporation can't take personal deals without first offering them to his own company.
"The problem during the boom wasn't the lack of rules," said San Carlos, Calif., hedge fund manager Eric Von der Porten. "It was that no one enforced them. So why are new rules going to make a difference?"
The rule barring analysts and investment bankers from being together in the same room with IPO candidates was, according to those interviewed, at best naive and at worst nonsensical. Couldn't the two simply collude on the phone, the analyst agreeing to hype so that the banker could win the business?
Granted, analysts' docility has been revealed as a huge problem. As Merrill Lynch & Co. analyst Henry Blodget acknowledged at the height of the boom: "There's certainly a tendency to give the company a benefit of the doubt" when your firm is the one that has taken it public.
Just how deep this tendency went in Blodget was revealed this year, when investigators released e-mails showing him touting Merrill-backed stocks he privately was describing as junk.
In January 2001, a Merrill Lynch financial consultant asked Blodget if he would recommend buying Excite@Home, the Redwood City, Calif., Internet portal and broadband company.
AT&T Inc. probably would buy the company, Blodget wrote back, "but as a stand-alone business, it's falling apart." At the time, Blodget had "accu- mulate" ratings on the stock. Excite@Home later folded.
"If the same firm employs the analyst, the originating investment banker and the broker who allocates the shares of the IPO, they're all going to have incentives" to act as a team, Lutin said. "You have to change the structure to change the incentives, and that's not happening."
As for independent analysis, the notion is "fanciful," said Randy Komisar, a consulting professor at Stanford University and veteran entrepreneur. "I see a bunch of [Wall Street firms] paying blood money to get out of a sticky wicket. I'm not sure how much they'll support independent analysis in the long run."
