Yet Another Investment Scandal: Duping Investors

I know it must be hard to believe, but there's more evidence that when financial services companies have conflicts of interest, they tend to pay more attention to their own than to those of clients. The New York Times reported yesterday that Massachusetts has turned up evidence that USB was deliberately trying to foist risky securities that it and its employees owned onto individuals:

Auction-rate securities are preferred shares or debt instruments with rates that reset regularly, usually every week, in auctions overseen by the brokerage firms that originally sold them. They have long-term maturities or, in the case of the preferred shares, no maturity dates whatsoever. The securities are issued by municipalities, student-loan companies, closed-end funds and tax-exempt institutions like hospitals and museums.

In mid-February, the $300 billion market for these instruments collapsed, trapping investors who had been told that they were safe and easy to cash in — leaving both wealthy investors and those of modest means unable to finance their small businesses, buy homes, pay college tuition and otherwise use their money as they had planned.

Although USB is denying it, Mass. secretary of the commonwealth Bill Galvin's office apparently uncovered some blatant emails. Read the story (at the link) to see some of the panic that knowingly ran through the company as it wanted to dump inventory - and that some emails by brokers themselves suggest that they felt they were being kept in the dark about real risk as well. If it really was cash equivalent, as they allegedly claimed, then why was it so hard for them to get cash? Could they be ... lying? Maybe: were their fingers typing?

Dell Guilty of Fraud: How Not to Make a Name for Yourself

Sometimes it's tough to top a factual roundup of what is happening to a company, and in this case, Dell's latest circumstances say a lot. Being found guilty of fraud? Just how badly does a major company have to behave when a court can rule its business practices fraudulent? It came down to deceiving people - promising technical support that it didn't delivery, and apparently didn't intend to deliver, if my understanding of the law behind fraud is accurate at all:

• The company effectively tried causing customers so much pain that they wouldn't or couldn't use the support services they purchased.


• It often didn't provide the on-site repairs it was contractually obligated to.


• People who purchased "next day" support sometimes had to wait ... an entire year to get a problem resolved.


• The company and its financial services affiliate would advertise no-interest financing and then deny it to almost everyone. It would sometimes charge people interest rates as high as 30 percent even when those people actually did qualify for the special financing.

Here's Dell's response, according to the IDG News story:

The court laid out plans for investigating how many people have been affected as a way to determine restitution. Dell hopes that the court will find that only a few people had bad experiences. "We're confident that when the proceedings are completed, the court will determine that only a relatively small number of customers have been affected," Dell said in a statement. "We believe that our customer service levels are at or above industry standards."

I know that computer companies generally have pretty bad technical support - at least, that's what I've found with a number of them. But this actually makes most of them look good. The problem is that Dell apparently sees customers as cattle waiting for slaughter. A few years ago, at the height of the company's reputation among investors and a fawning press, I predicted that one day magazines would run the major story, "What Ever Happened to Dell?" However, I was thinking in terms of how the company has tried to drain dry the money from its own supply chain. This is even more extreme.