Author of Merrill Lynch: The Cost Could Be Fatal

1. The title of your book—Merrill Lynch: The Cost Could Be Fatal—sounds ominous. What does it mean?

A. “The cost could be fatal” is a quote from Stephen Hammerman, Merrill Lynch’s former vice chairman and general counsel, in a statement published in 1992, about the time I first filed my complaints. He urged us all to report problems and to deal with them, because if we “let integrity slip and take second place to revenue-then it will cost us more than dollars. The cost could be fatal.” That, along with many other policy statements, gave me confidence that my reports of misdeeds would be welcomed and dealt with. As it turned out, though, my confidence was misplaced.

2. What were some of the problems you reported?

A. There were ten in my initial complaint. Some are complex issues that are hard to explain without lengthy descriptions. One involved cheating by local management in a company-wide contest that could affect management bonuses by $100,000 or more. Another was the apparent use of cheat sheets in taking life insurance examinations. Others included misrepresentations to clients about certain types of investments and failure to deliver on promises to its financial consultants involving assets. Later, I reported two senior management cover-ups to the board of directors.

3. Offhand, to an outsider, some of these charges, such as senior management cover-ups and cheating on an exam, seem quite serious, while others seem more technical in nature.

A. The cover-ups, of course, are serious ethical violations in themselves, and show how fearful management was of the other issues coming to light. Cheating on exams obviously places clients in harm’s way, because brokers won’t have the expertise to advise them properly. Managers who cheated in contests to win big bonuses had the effect of not serving the best interests of clients. Some of the other problems might seem a little more obscure to people not in the business, but they all showed a pattern of unethical behavior—a corporate culture that encouraged making money by any means rather than doing the job expected by clients and shareholders.

4. What happened when you complained?

A. I encountered resistance and cover-ups at every level. First, by the manager of internal reviews, who led the first investigation. Then, by an assistant general counsel, who led the second investigation. In the process, I was terminated from my position.

5. So you brought a court suit. What happened?

A. Initially, I had full confidence that I would prevail in my wrongful-termination action—in court, in front of a jury of my peers. I had a well-known and now nationally famous lawyer, Stephen Jones. I had heavyweight witnesses, such as Professor Michael Rustad, the nation’s leading authority on punitive damages, who would testify that I should be awarded millions of dollars in damages. Unfortunately, I was denied a jury trial. The case went to arbitration by the New York Stock Exchange, a process that I believe Merrill Lynch, because of its corporate clout, was able to fully control.

6. Your battle with Merrill Lynch has continued for over ten years. Clearly, you would have been better off personally, at least financially, if you had just quit and looked for another job with a company you felt more confidence in. Why did you continue this David vs. Goliath fight?

A. It was right vs. wrong. Merrill Lynch is a huge, powerful corporation, whose actions affect very large numbers of clients and shareholders. It has a reputation as the broker that brings Wall Street to Main Street, the company that everybody can trust. I’m a strong believer in American capitalism, and it was clear to me that when there are misdeeds of this magnitude with Merrill Lynch, that’s a problem for America. Knowing the extent of the cover-ups, I couldn’t just put the matter behind me and look the other way.

7. Why did you write the book?

A. I wrote the book because I have a story that I believe the public needs to hear. As I see it, it is a story of how a large corporation accepted widespread wrongdoing and then played a game in which the primary objective was to win, regardless of the merits. The more I learned about Merrill Lynch’s modus operandi, the more resolved I became to expose it. I was denied the chance to argue my case in court before a jury of my peers, but I’m happy to be judged in the court of public opinion.

8. How would you characterize the book and its message?

A. The book is about lying, cheating, and cover-ups—all which could place clients at risk. It’s about the board of directors failing, in my opinion, to take appropriate actions concerning the cover-ups that I revealed to them-which had the additional effect of placing shareholders at risk. The book is about an individual—me—determined to expose the facade that Merrill Lynch hides behind.

9. Do you expect your book to be controversial?

A. It already is. Lloyd’s of London would not insure it; and Stephen Jones has called the book dangerous because it “names names, takes no prisoners, and is explosive.”

10. Just after your book went to the printer, reports of widespread corporate scandals began filling the newspapers, several of them including allegations against Merrill Lynch. Are any of the new scandals related to the events you report in your book?

A. The connection is that the corporate culture encouraged dishonesty in pursuit of the almighty dollar, and covered up corruption. That didn’t happen overnight—the same culture was there ten years ago. It’s now catching up with Merrill Lynch, in ways that I believe will be increasingly hard to cover up. It’s too bad that it’s coming to this. If senior management had paid attention ten years ago, and had followed its own stated policy of addressing and correcting problems, then Merrill Lynch today would look like a shining beacon on the hill, proof that honesty and integrity can still be guiding principles for a successful Wall Street firm. Sadly, that’s not what happened.

11. Does your book shed light on the ethics of other Wall Street securities firms?

A. In an indirect fashion, yes. Merrill Lynch has long been considered by many to have the finest legal and compliance system on Wall Street. My book shows a pattern of problems at the firm ranging from the brokers to senior management. Even the experienced NASD investigator in charge of the Merrill Lynch matter told me that his eyes had been opened regarding how large securities firms really work and he was no longer sure his assumption that they were pretty good at policing themselves was correct. So, I would say that when Merrill Lynch has problems, it stands to reason that the rest of Wall Street likely has problems, too.

12. Were there ever any efforts to intimidate you into silence?

A. Oh, yes. For example, shortly after I had informed the board of directors of the first cover-up, my manager called me into his office and read a prepared statement threatening to sue me and my family if I did not make certain retractions. I would say that short of having a gun held to my head, the hostility could not have felt greater.

13. Tell us a little about your experiences in court with Merrill Lynch.

A. Well, to say the least, they were eye-opening experiences. I knew that Merrill Lynch played hardball, but I didn’t realize just how blatantly they would flout the ideal of justice. The firm failed to disclose important documents during discovery; produced several witnesses who uttered untruthful testimony; and its counsel was loose with the facts. Truth and justice were not Merrill Lynch’s goal. Its goal was simply to win.

14. What do you think Merrill Lynch needs to do now to save its reputation?

A. This is strictly an opinion, but I think something major has to happen—a shakeup that includes removal of some of the senior executives and directors, and establishment of new procedures to act on reports of misdeeds rather than covering them up. That’s a tall order, but Merrill Lynch can thrive only if it has the trust of its clients and shareholders. In my opinion, the firm can’t win back that trust without taking strong steps to reform the corporate culture that guides the work of its thousands of employees.

15. What would you like to see result from your book?

A. I would like to see Merrill Lynch come clean. It’s time for the cover-ups to end. I would like to see the firm do the right thing—which I believe includes terminating certain members of senior management who failed to fulfill their responsibilities in managing the company. Also, I believe those directors who failed to take action after I notified them of the cover-ups should step aside. In the absence of this, I would like to see a public outcry from Merrill Lynch clients and shareholders demanding that the truth be told and that culpable individuals be removed from the firm. Investors are now unwilling to accept the possibility of risking millions and millions of dollars because of misbehavior by corporate leaders. Investors are tired of being victimized.

16. Your book is in the form of a personal narrative. Why did you choose that format?

A. I thought a personal narrative would be the most effective way to tell the story—a way that all readers could relate to. My story has not only legal, business, and ethical dimensions but also a human one. I share in detail the level of hostility and tension I encountered. I also share the concern I had for my family as things unraveled so disastrously. I explain my motives behind my actions, including coming to the realization that I did not want to be part of an organization that I saw as infected with hypocrisy, right up to the highest levels.

17. Who should read this book?

A. I think my book is important reading for every investor. We’re watching scandal after scandal, and the stock market has been seriously hurt as a result. Every investor is watching the scandals as they unfold, trying to figure out what’s going on and to gain crucial insights that are needed for their protection. I think my book gives people an inside look at how the game is played. Also, I have had excellent reactions to my book by the legal and academic communities – in fact, a lengthy interview with me in a legal publication just went out to academic law libraries, law firms, federal courts, and the U.S. Supreme court. It is my hope that my book will become the case study used by business schools, law schools, and corporations to show what can go wrong and what needs to be avoided.