The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [371]
On May 20, Obermaier’s office called Olson to say that the government was not going to indict and had dropped all charges. The U.S. Attorney and the SEC announced a settlement with Salomon over fraud and record-keeping charges; including the $100 million restitution fund, it was in total the second largest fine in history. The settlement found no evidence of wrongdoing other than Mozer’s illegal bidding, which had been discovered by Salomon itself. Mozer was going to prison for four months, and would pay a $1.1 million fine. He was barred from the industry for life.59 Gutfreund, Meriwether, and Strauss were reprimanded for failing to supervise him, given small fines, and suspended for a few months from working in the industry.60
Some thought Salomon got off easy compared to Drexel Burnham Lambert, which had paid $650 million and imploded after settling felony charges of stock parking and stock manipulation. But most observers were dumbstruck at the size of the fine for what amounted to technical violations by one employee. In fact, by acknowledging its guilt to the government so freely, some thought Salomon had given up its negotiating leverage. But what the large fine really reflected was that the firm had bungled its reporting responsibilities so badly, and had made the regulators look asleep at the switch in front of Congress. In other words, thumb-sucking and obfuscation had nearly bankrupted Salomon. Thus it was, as the well-exercised saying goes, the cover-up, not the crime.
Three days after the announcement, Dan Cowin died of cancer. Buffett wrote out a heartfelt eulogy, meaning to deliver it himself, and asked his secretary, Paula Orlowski, to stop by his hotel room and pick it up to have it typed. But when she arrived, he met her at the door and said, with an agonized look, that he could not bring himself to speak at Cowin’s service. Instead, Susie was going to read it for him.61 Buffett went to the service. “I sat through it shaking all over the whole time,” he says.
Then he went back to work. Salomon estimated that the $4 million profit Mozer had made from his trades had cost the firm $800 million in lost business, fines, penalties, and legal fees. The firm’s status as a primary dealer remained unresolved, although it now seemed a foregone conclusion that this would be resolved in Salomon’s favor.62 Employee defections had slowed to a trickle, and the rating agencies were starting to upgrade Salomon’s debt. Customers started coming back. As Salomon stock crept above $33, Buffett, who could not wait to return permanently to Omaha, announced that he was stepping down. Deryck Maughan took over as permanent CEO, and Buffett appointed MTO lawyer Bob Denham as chairman. When it was over, says Gladys Kaiser, “I could almost see a big sigh of relief. It was as if, almost overnight, we got Warren back.”
In that mournful spring of 1992, as Salomon staggered to its feet, the question of how to deal with those who had nearly brought it down remained unresolved. Second only to Mozer in the public’s assessment of culpability was John Gutfreund. In the end it was he who was responsible, despite all the legal advice that reporting was not required.
When the time came for Gutfreund to discuss what money he would receive from the firm, he asked for the “fair treatment” he had been promised as long as Buffett and Munger were alive. Now, however, it turned out that the parties’ opinions of what was fair differed dramatically.
Gutfreund’s lawyer thought that he had made a deal with Charlie Munger on that fateful weekend in August of the previous year, and that Munger had accepted a resignation letter conditioned on the lengthy list of severance terms. Gutfreund felt that he had fallen on his sword to save the firm and thought he was owed $35