The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [367]
He did not want this promotion; he and the other arbs wanted J.M. back. Meriwether’s office remained exactly as he had left it. The golf clubs, his ceremonial instruments of power, leaned in the corner. The cleaning crew kept the shrine well-dusted. The arbs gathered to consult the oracles of trading. They prayed for J.M.’s return. Salomon’s stock continued to slump toward the low $20s.
As the investigation ticked along and the employees rowed like galley slaves, Buffett’s mind could not help but wander toward his main preoccupations: Berkshire Hathaway and investing. He had just bought a shoe company, H.H. Brown Shoes, and turned to his secretary at Salomon, Paula Orlowski, sending her to the library to delve into computer files in search of SEC documents on Morse Shoe, another footwear maker that had recently filed for bankruptcy.37
Nevertheless, Salomon demanded most of his attention. Piled on top of other, earlier scandals—Ivan Boesky, Michael Milken at Drexel Burnham Lambert—the Salomon affair had fueled the perception that Wall Street was utterly corrupt. In the wake of Buffett’s performance before Congress, a raft of other brokerage firms rushed to the confessional and followed suit.38 By now, Salomon’s investigators had discovered that Mozer had bid more than thirty-five percent on eight separate occasions, submitting false customer bids or jacking up customer bids and taking the extra bonds into Salomon’s own account without informing the clients whose names had been used. On four occasions he had managed to acquire more than three-quarters of all the debt issued.39 As the witch-hunt atmosphere heightened, Buffett upped the ante. At the next board meeting, he led a discussion. Why should Salomon be paying the attorneys of John Gutfreund to stonewall us? was the thrust of his questioning.40 The directors voted, almost unanimously, to make two surprising moves. No severance pay, they said. And the firm cut off payment of legal fees for the former executives.41
The drama now revolved around two things: the Federal Reserve’s deliberations over whether to keep Salomon as a primary dealer, and the criminal case. The Federal Reserve lacked the expedient option of temporarily suspending the firm: “It’s like executing somebody technically and then resuscitating them,” said Federal Reserve Chairman Alan Greenspan. In October, the Fed was seriously considering letting Salomon fail. Keeping it around was a decision that might be “jumped on by politicians right and left.”42
The U.S. Attorney’s prosecutors thought they had enough evidence to indict. The criminal law makes it very difficult to defend corporations against the acts of their employees. Gary Naftalis, Salomon’s criminal lawyer, advised the firm that “Salomon plainly could be convicted” if it was indicted. For obvious reasons, everyone at the firm was desperate to get the criminal matter resolved. As long as it was hanging over the firm’s head, Salomon operated under a death threat, and customers knew as much. But Naftalis was in no hurry. He reasoned that a quick decision would probably mean indictment, whereas more time would let him lobby and persuade that Salomon did not deserve indictment; more time would let Salomon demonstrate its extraordinary willingness to cooperate; more time made it less likely that the prosecutors would indict.43
After some three months of work dedicated to reforming the firm, Denham led Buffett, Olson, Naftalis, and Frank Barron to a secret location, chosen at U.S. Attorney Otto Obermaier’s insistence, half a mile from the prosecutor’s office at St. Andrew