The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [341]
No matter what, these admissions were going to be highly embarrassing to the Treasury and the Federal Reserve. Corrigan was shocked that the firm had not come to him saying that it had already fired Mozer and created a remedial program that involved instituting all sorts of new controls. But he expected something like that to be announced within twenty-four or forty-eight hours, after which he could “keep them on probation for a while and hope that would be the end of it.” He told Gutfreund and Strauss, “patiently and dispassionately,” as he recalls, that they had an immediate obligation to release this information to the public. Based on what he knew, he surmised that the incident could blow up into a “very, very, very significant problem.”12 It seemed to him, however, that Strauss and Gutfreund did not fully grasp this. Indeed, with hindsight, the fact that Gutfreund had gone off to London, thus placing his ability to participate in the calls with Buffett, Munger, and the other directors in the hands of an airline, was itself a telling sign.
The next day, Friday, August 9, Buffett was enjoying himself with Astrid and the Blumkins, walking along the board sidewalks of Virginia City, the old Western gold-rush town. He called in to his office. Nothing urgent was happening. Nobody at Salomon had called him. Salomon had put out the press release describing the events in fairly bland terms. The stock had fallen five percent, however, to $34.75.
Buffett called Munger on Saturday at his cabin on Star Island in Minnesota. Munger flatly told him a much more detailed and alarming story. Feuerstein, reciting from the list of “talking points,” had said that “one part of the problem has been known since last April.” While these same words had been read to the other directors, including Buffett, they had the effect of technically informing without really enlightening.13 But Munger picked up instantly on bullshit legalese and the passive voice, which irritated him. What did that mean, “has been known”? What exactly had been known? And by whom?14 When pressed, Feuerstein gave Munger a much fuller description of events, similar to what Corrigan had been told.15
As Feuerstein recounted, Mozer had gotten a letter from the Treasury Department in April saying they were investigating one of his bids.16 Realizing that the game was up, on April 25 he had gone to his boss, John Meriwether, and made a confession of sorts. In February, to get around the thirty-five percent limit, he had not only bid in Salomon’s name, he had also submitted phony bids under real customers’ names.17 Mozer swore to Meriwether that this was the only time, and he would never do it again.
Meriwether had recognized immediately that this was “career-threatening,” had said so to Mozer, and had reported the situation to Feuerstein and Strauss. On April 29, the three of them went to Gutfreund and told him what Mozer had confessed. Gutfreund, they said later, had been red-faced and pissed off when he heard the news.
Therefore, in April, Gutfreund knew. Strauss knew. Meriwether knew. Feuerstein, the general counsel, knew. They all knew.
Feuerstein had informed Gutfreund at the time that Mozer’s actions appeared criminal. He didn’t believe that the firm technically had a legal reporting requirement. Still, Feuerstein was sure that Salomon would run seriously afoul of the regulators if it didn’t do something, and therefore the Federal Reserve must be told. Gutfreund said it would be taken care of. Curiously, however, no specific plans were made to march down to the Federal Reserve’s ornate Italianate building and give Jerry Corrigan the news. Moreover, having concluded that the phony bid was a “one-time, aberrant act,” they had decided to leave Mozer in charge of the government desk. Hearing this, “Well, that’s just thumb-sucking,” Munger had said. “People do that all the time.” He later explained that by thumb-sucking he meant “sitting there