Morgan Stanley Dean Witter & Company, which might be the best investment bank on Wall Street, had a lousy summer.
If you didn’t know a thing about investment banking (which would put you on a par with a few top investment bankers), you could have scanned the summer’s headlines touting a series of scandals at Morgan Stanley and arrived at the innocent conclusion that the venerable firm had fallen on some hard and tawdry times. It mattered little that business was booming. The newspapers made it sound like the place was full of sexists, sex fiends and racists, protected by inept lawyers and flacks. Two dead bodies, an insider trading case, a Playguy spread, an ear-biting episode, a host of lawsuits, firings and resignations–it was a lot to take in. As the summer wore on, when bankers from rival firms got together at the club for a little tennis or golf and complained about their own company politics or the assholes they worked for, there always seemed to be someone who would comment dryly, “Well, at least you don’t work for Morgan Stanley.”
They were kidding, of course. They all want to work for Morgan Stanley. It’s at the top of the league tables, and the name is almost as good as the money.
The firm’s summer as a tabloid staple started with the Christian Curry affair, in which Mr. Curry, a young black analyst who had been fired from the firm for padding his expenses (if not for appearing naked and aroused in a gay pornographic magazine), sued the firm for discrimination. The Morgan Stanley name suffered further when the firm’s legal department was busted by the Manhattan District Attorney’s office for paying a shady police informant $10,000 essentially to entrap Mr. Curry in a felonious attempt to hack into the firm’s computers and bolster the claims in his lawsuit. The District Attorney instead wound up dismissing its charges against Mr. Curry and turning its investigation on Morgan Stanley. Because of the circumstances surrounding the $10,000 payment, Christine Edwards, the firm’s chief legal officer, was forced to resign, amid newspaper stories about tensions in the legal department between the Morgan Stanley people and the Dean Witter people–stories that also made a few nudge-nudge-poke-poke references to the “close” relationship between Ms. Edwards and chief executive Philip Purcell, both of whom were from Dean Witter, and both of whom are married. Monroe Sonnenborn, another firm lawyer and a 16-year veteran of Morgan Stanley, was forced to resign as well.
The Curry case put the firm in the media’s cross hairs. Bad p.r. comes in bunches, and now it was Morgan Stanley’s turn. As Mr. Curry, his fiancée, and his lawyer, Benedict Morelli, worked the television circuit, bashing the firm at every turn, more disgruntled Morgan Stanley employees piped up. Jonathan Littman, a former Morgan Stanley stockbroker, filed a lawsuit claiming that the firm engaged in a “company-wide policy of institutional tax fraud.” (The firm fired back that Mr. Littman had been fired for “hostility, insubordination and extremely poor judgment.”)
A week later, the firm was taken to U.S. District Court by the Equal Employment Opportunity Commission, which charged that in passing over a bond saleswoman named Allie Schieffelin for a managing director position, Morgan Stanley was engaging in gender-based discrimination.
Also in July, Brett Henderson, a banking analyst based in Menlo Park, Calif., was fired for insider trading after leaving a list of his illegal trades on the office photocopier. The Securities and Exchange Commission charged him on Aug. 2. And on Aug. 18, Alan Damon Harvey, a former banking analyst who had shared a bullpen with Mr. Curry, filed his own racial-discrimination suit in Manhattan Federal Court, asking for $35 million in damages. (He, too, is represented by Mr. Morelli.)
It got so ridiculous that in mid-July, when the plane carrying John F. Kennedy Jr., his wife Carolyn and her sister Lauren Bessette, a Morgan Stanley banker, crashed off Martha’s Vineyard, Andy Serwer, a Fortune columnist, wrote that the word on Wall Street had it that the crash was “Morgan Stanley’s fault,” because they’d kept Lauren working late and thus delayed the flight.
Finally, in September, the biggest post-Curry whopper yet would hit the firm. On Sept. 7, Elena Drill, a former Russian model and Morgan Stanley administrative assistant, was found dead with a boyfriend in her Manhattan apartment, in a bizarre murder-suicide
A week later, The Wall Street Journal reported that Drill had had an affair with Robert Kitts, a $7 million-a-year Morgan Stanley managing director who during a dinner last winter bit the ear of an analyst during a fight. The Journal said that upon learning in July that he had not ended his affair with Drill, the firm forced him to resign. Subsequently, when she was not promoted as she had expected, she complained to the firm that she had been sexually harassed. (Word out of Morgan Stanley was that senior bankers were appalled not by any of the story’s sordid details, but by the fact that this guy Mr. Kitts was making $7 million.)
The timing of the July resignation, according to sources familiar with the firm, was not coincidental. Burned by the Curry case, the firm’s lawyers need to take a tough stance. By quietly getting rid of Mr. Kitts, they were solving the problem by making it go away. But how were they to know that two months later Drill would turn up dead, and the cycle would continue? (Morgan Stanley did not respond to a request for comment.)
For decades, Morgan Stanley has been the cream of the Street and, as the WASP counterpart to the great Jewish firms like Goldman Sachs Group Inc., never clear of epithets like white-shoe and blueblood. Newly situated in a gaudy tower near Times Square, it has continued to thrive in the wake of its 1997 merger with Dean Witter, a financial services giant devoted to retail brokerage. The combined giant remains a place where diligent Ivy-educated snot noses toil through the night over company valuations and modeling work (as in spreadsheets, not Playguy spreads).
And it is a haughty enough place that such a torrent of negative, often sordid, publicity barely fazes the people who work there. According to people at the firm, they think that many of the discrimination and harassment lawsuits are frivolous, and that scandal and litigation is simply part and parcel of working on the Street.
“Firms like Morgan Stanley, Merrill Lynch and Goldman Sachs are always in a fishbowl,” said one investment banking executive at another firm. “Everybody likes to go after the rich guys … It’s nothing to do with the culture at the firm. Nothing at all. Now it’s Morgan Stanley’s turn to be in the fishbowl.”
Interviews with a handful of Morgan Stanley employees suggest that the people at the firm are shrugging it off. They have more important things on their minds–money, money and money–and as long as the scandals don’t impair their ability to earn as much of it as possible, the racy headlines are a minor embarrassment, a titillating diversion, but little more.
“The mood is fine,” said one Morgan executive. “These are clearly a cumulative series of incidents that could happen anywhere. Usually, the trouble surrounds individuals who are pigs.”
In the midst of all this p.r. mess, Morgan Stanley is kicking ass. Third-quarter earnings, which are due for release Sept. 22, are expected to be strong. Analysts estimate that the firm’s profits per share this year will have jumped from $4.95 last year to $6.95 this year. And 1998 was a banner year.
So far this year, according to Thomson Financial Securities Data, a provider of financial information, Morgan Stanley is ranked second to Goldman Sachs in the dollar amount of I.P.O.’s underwritten–unless one tosses out Goldman’s underwriting of its own I.P.O., in which case Morgan Stanley ranks first. The firm also ranks first in the performance of their I.P.O.’s in the aftermarket, and second in mergers and acquisitions, in terms of the value of the deals it has worked on. Its biggest deal so far this year was Vodaphone Group’s $65 billion purchase of Airtouch Communications Inc. It also advised Viacom on its $38 billion purchase of CBS.
But what of the culture? Is there fire where there’s smoke? Wayne Outten, the lawyer for Ms. Schieffelin, the bond saleswoman, thinks so. “They say a lot of the right things,” he said. “They’ve got policies that say all the right things. But the actions? It’s kind of like a pyramid: the higher you go up the fewer women there are, and there’s definitely a culture of being one of the guys to get ahead with the senior leadership of the company.”
This is not a surprise. But it may turn out to be a liability.
“That story about the guy with the dead mistress? You can’t have too many of those in this business,” said a broker at a rival firm. Then he gloated, “We don’t think it’s a coincidence that we rarely land on the front pages.” Oh, they’ll get their chance one of these days.
What They Did Last Summer
· April 22, 1998
Christian Curry is fired from Morgan Stanley Dean Witter & Company.
· Aug. 20, 1998
Mr. Curry is arrested on five felony counts.
· May 18, 1999
The District Attorney drops the charges and begins investigating Morgan Stanley instead for paying off an informant.
· May 19
Mr. Curry files a $1.35 billion discrimination suit against the firm.
· June 10
Christine Edwards, Morgan Stanley’s chief legal officer, resigns.
· July 14
District Attorney Robert Morgenthau concludes that officials at Morgan Stanley “exercised poor judgment” but violated no criminal laws.
· July 19
Morgan Stanley banker Lauren Bessette dies in a plane crash with Carolyn Bessette-Kennedy and John F. Kennedy Jr. A Fortune columnist writes that it’s “Morgan Stanley’s fault.”
· July 21
A New Jersey newspaper reports that Jonathan Littman, a stockbroker fired by Morgan Stanley, filed a lawsuit in April claiming that the firm had engaged in “institutional tax fraud.”
· July 29
The U.S. Equal Employment Opportunity Commission takes Morgan Stanley to court as part as an investigation into alleged discrimination against women at the firm.
· Aug. 2
Brett Henderson, 25, a Morgan Stanley analyst, is charged with insider trading.
· Aug. 18
Alan Damon Harvey, an office mate of Mr. Curry, files a $35 million racial discrimination suit against the firm.
· Sept. 7
Elena Drill, a 27-year old Morgan Stanley administrative assistant and former model, is found dead in her midtown apartment.
· Sept. 14
The Wall Street Journal reports that Robert Kitts, a Morgan Stanley managing director, was forced to resign in July for having an affair with Drill, who had complained to the firm that he’d sexually harassed her.
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