HBC Gives Wall Street a Reality Check

Post Date:

September 27, 2010

UPDATE: HBC's Wall Street event was recently awarded a "Your Honor Award" for Big Idea by the Legal Marketing Association.

In 1987's Wall Street and in 2010's Wall Street: Money Never Sleeps, Oliver Stone has documented two distinct eras of financial scandal. Hours after his latest opened on Friday, Hellerman Baretz Communications brought together a panel of securities attorneys who don't just know the subject matter of Mr. Stone's films-they have lived it.

After a screening of the movie, we gathered at The Caucus Room with the star-studded group:

Harvey Pitt, the former Chair of the SEC and current CEO of Kalorama Partners, once served as attorney to Ivan Boesky, the model for Stone's iconic Gordon Gekko.
Barry Goldsmith and John Sturc now lead Gibson Dunn's Securities Enforcement practice; in the 1980's, they lead the SEC's prosecution of Boesky, Michael Milken, and Drexel Burnham Lambert.
Bill McLucas was the longest-serving director of the enforcement at the SEC before becoming Chair of WilmerHale's securities practice. Chambers USA just calls him "the preeminent SEC enforcement lawyer in the country."

Oliver Stone would have paid good money to get this group as consultants. While he didn't get the benefit of their wisdom, representatives from The Wall Street Journal, Legal Bisnow, the National Law Journal, and the Legal Times listened in as John Hellerman moderated a friendly, free-flowing discussion among attorneys who sometimes find themselves on opposite sides of the table in the country's highest-stakes securities matters.

Where's Gekko

Over dinners of filet and salmon, one major point of agreement emerged. Barry Goldsmith articulated the shared view that the market failures detailed in Money Never Sleeps, which centers on the real estate bubble and ensuing credit crisis of 2008, were "much more systemic" than the insider trading of individuals such as Milken that inspired the original Wall Street. For that reason, Mr. Goldsmith said, "the comparison between the old days and the new day fails." Mr. Pitt joined that viewpoint, saying that much of the "conduct that lead us to where we are was not necessarily illegal."

Still, the fact that the credit crisis animated a reprised critique of Wall Street villainy by Mr. Stone surprised no one. "There's an impatient lust for the guys who did this to go to jail," Mr. McLucas said, "only it's hard to identify the guys who did this." He noted that increased popular interest-and perhaps popular anger-over spasms in the financial markets can be attributed to the trend of the widespread investment in securities. That trend did not begin until the 1970s, he noted, and has only increased between 1987's Wall Street and today.

Wall Street III: Coming Soon?

Fueling the public ire, of course, has been the perception that some on Wall Street profited greatly while setting a torch to the economy. Or worse, that the widely perceived disconnect between executive compensation and long-term financial results caused the whole fire. But Mr. Pitt challenged that notion directly. "There's nothing about the meltdown of 2007 and '08 that is a function of excess compensation," he said. Mr. McLucas made the additional point that those who profited on the crisis through smart investments should not be considered suspicious-though that seems to be the case. "They're all under investigation," he said.

Expanding out from the compensation question, the table sounded largely skeptical that the Dodd-Frank financial reforms could prevent another crisis worthy of Oliver Stone's attention. Mr. McLucas underlined the speed with which the legislation was drafted, as well as the open question of whether it addressed the systemic risk that inflated the housing bubble. Similarly, Mr. Pitt offered a criticism of the legislative process, openly wondering if it made sense to draft legislation first (2,300-page legislation, he noted, which many members of Congress have not read) before conducting a study of what went wrong.

Goldman's Missteps

Money Never Sleeps verges on roman a clef, and the group quickly identified the movie's federal regulator as a stand in for Henry Paulson. He features in a closed-door meeting among banking giants in the immediate aftermath of the market collapse, a scene that Mr. McLucas found among the film's most entertaining. "Only 35 people or so understood how close we were to a complete economic collapse," said Mr. McLucas of the real-life situation.

A thinly-veiled Goldman Sachs appears in the film as Churchill Schwartz, an investment bank headed by the actor Josh Brolin. On screen, Mr. Brolin's heavy brow casts his eyes in shadow, giving the movie audience a can't-miss signal of his dark nature. The real Goldman Sachs, Mr. Pitt noted, did itself no favors in the image department either. "It amazes me," he said, that Goldman Sachs chose to vocally question the timing of the fraud charges brought against it by the SEC. While Goldman Sachs agreed to a $500 million settlement, many found no lack of coincidence in the charges against Goldman being announced on the same day that an embarrassing report on the SEC's inaction toward accused Ponzi-scheme operator Allen Stanford was released. Mr. Pitt is not among those who find the timing curious (neither is Mr. McLucas); regardless, Mr. Pitt found it foolhardy for the investment bank to pick a public fight with the regulatory body overseeing it.

Back to Boesky

Lending some perspective to how much life has changed between the original Wall Street and today, Mr. Goldsmith and Mr. Sturc noted that their SEC office had only two computers at its disposal as they worked the case against Drexel Burnham Lambert. According to Mr. Goldsmith "only one guy who knew how to use them," and he quickly became essential to the team drafting the complaint. Technology or not, they got the job done. Mr. McLucas singled Mr. Sturc out as the man who broke Dennis Levine, whose guilty plea and settlement of SEC insider trading charges was a critical step in the cases against Boesky, Milken, and Martin Siegel.

Mr. Sturc drew another distinction between the 2008 meltdown and disruptions from the insider trading scandal of the go-go 80s. He noted that when Drexel Burham failed, the market went right along-as opposed to two years ago, when the world stood on the precipice.

In that sense the credit crisis may have more in common with reopening of the stock market after September 11th, when Mr. Pitt presided at the SEC. No one knew then how severe the dip might be when the market opened after a six-day hiatus. Mr. Pitt credited ConEd and Verizon for outstanding work in getting their systems ready in short order, and noted that the markets could have opened in less than six days if necessary. But Mr. Pitt said that resilience of the market after September 11th offered few lessons for the present day, in light of the fact that the uncertainty at that time was borne by an "externally generated crisis."

Movie Reviews

The Wall Street movies' most famous character, Gordon Gekko, was written as a cautionary tale but was quickly embraced by New York traders. Gekko did not age well in the eyes of Mr. Pitt, who found the character more loathsome this time around. With his nine-year old daughter in mind, Mr. Pitt could not forgive Gekko for extending his ruthless financial ways to his fictional daughter in the 2010 update.

As for their take on the movie, the group gave Mr. Stone a mixed bag. Mr. Sturc gave a solid thumbs up, while Mr. Pitt thought the movie tried to tackle too many subjects. Mr. Goldsmith felt that while the "broad themes rang true," it fell short as a film. "Real life is actually more interesting," he said.

It was Mr. McLucas, however, who delivered the most stinging comment towards Oliver Stone. Asked about the movie's critique of the financial services industry-and the great wealth it creates for itself without producing anything tangible-he posed a rhetorical question contrasting Wall Street titans with Hollywood directors. "Who does less for more?" he said with a shrug and a grin.

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