Serpent on the Rock

by Kurt Eichenwald

A real-life thriller—the story of kickbacks and payoffs, of shady deals struck in secret with known felons; a story in which half a million people lose enormous sums—some their life’s savings—in the largest securities fraud of the 1980s, with names like Onassis and Bush numbered among the victims.

Genres: Business, Nonfiction, Finance, True Crime, History

503 pages, Paperback

First published January 1, 1995

Reviews

[Nina · Rating 5 out of 5]

Wow, this was scary. After reading this you'd think twice about investing your hard earned money anywhere. I loved Eichenwald's other books (The Informant, about the ADM scandal and Conspiracy of Fools, about the Enron debacle). This one was written in between those two and is about the Prudential-Bache fraud. Hundreds of thousands of people lost their money, yet the perpetrators never went to jail and are still rich. In the preface, the author says, "Why did we learn nothing? Why did corporate America continue down this self-destructive path? To me, the answer is obvious: Despite the vast wreckage caused by Prudential's fraud, no individual was ever held accountable. No one ever went to jail, no individual was cited by the Securities and Exchange Commission." And at the end of the book, he concludes "As long as there is greed, as long as crimes go unpunished, as long as Wall Street can make millions even if clients lose money, the scandal at Prudential will be just another chapter in an ongoing saga of financial fraud."

[James · Rating 5 out of 5]

There is a distinct possibility that I've found my niche in books - Corporate malfeasance followed by justice.

The other possibility is that Eichenwald researches and writes a tremendously compelling narrative.

Also, the possibility of both.

This book was one of those times that I read something because I have sufficient faith in the author. I went into this book with no desire for the material (some securities/investor fraud at a Prudential subsidiary in the 80s), and no knowledge of the situation. As so often rings true, maybe its my lowered expectations that lifted this one so high.

I also like stories about work. My friends' stories about work, strangers' stories about work, I'll take them all. I love hearing the day to day. Working, Gig, those are other books I've enjoyed. Eichenwald beautifully paints such empathetic everymans and such grotesque villians - in a book full of footnotes and sources.

Really don't have much to say about it other than its great. Just great.

[Cpryor · Rating 5 out of 5]

Another very interesting report from Kurt Eichenwald. I was amazed by the sheer dishonesty of many of the players involved - all for power and to line their own pockets. Many believed that what they were doing was wrong at all. The story reports on Prudential Insurance and their purchase of Bache Securities. The newly formed security company basically put together extremely risky deals and marketed them to conservative investors. Many lost thousands of dollars when the deals all folded. Will make you think more carefully about where you invest your money.

[Heather · Rating 4 out of 5]

First of all, I will never do business with Prudential after reading this book. It is an excellent case study on how investing can go wrong when investors get complacent and brokers get greedy. Bottom line - if something sounds too good to be true, it usually is. Be careful where you invest your money and ask lots of questions.

[Tom Schulte · Rating 3 out of 5]

This well-researched, detailed study of the Prudential-Bache scandal that unfolded over years and has cameos including Adnan Khashoggi the Saudi arms dealer, the "pizza connection" Sicilian Mafia heroin scheme, and more.

The scene was set with a regulation landscape proper for the opportunity for abuse thanks to the Reagan tax cuts.

The Reagan bill, called the Economic Recovery Tax Act, promised to cut personal income-tax rates by 25 percent over three years and sharply cut business taxes to encourage new investment in plants, equipment, and real estate. After presenting the plan less than a month into his administration, Reagan, as well as his supporters, expressed confidence that the proposal would effectively kill the burgeoning tax shelter industry. On its face, the argument seemed to make sense. After all, shelters were largely a response to high tax rates, and the Reagan plan was expected to cut personal income-tax rates by an average of 25 percent over three years. But there was a critical flaw in their argument. Rather than kill the shelter business, the Reagan bill would spur their growth by making them more attractive investments.

The heart of his business tax-cut plan was a program known by the acronym ACRS, which stood for Accelerated Cost Recovery System. Under that proposal, assets such as real estate and equipment could be depreciated far faster than they had been in the past. Essentially, where the tax code once declared that a building would run itself down in twenty-five years, giving investors depreciation deductions throughout the entire period, under ACRS the time was reduced to fifteen years. That made investments in real estate and other depreciable assets far more attractive. It sharply boosted the amount of deduction bang an individual could get for each investment buck. Never had there been any legislation so significant to the growth of the tax shelter industry.

...

Within a matter of days, before Wall Street barely got out of the gate, the tax shelter business got another boost. A second radical change was announced on August 18 in the staid and solemn pages of the Federal Register. A publication of the United States government, the Register carries all proposed regulation and regulatory changes, and it is hot reading among lawyers and lobbyists. On that August day, it carried a proposal from the Securities and Exchange Commission that was read widely across the financial world: The government securities regulator wanted to change the rules for selling unregistered securities like private partner-ships.

The proposal, known as Regulation D, reduced some of the restrictions on such sales. It eliminated the ceiling that restricted the sales of unregistered securities to just a hundred people, loosened the definitions of what kind of investors could participate in such offerings, and raised the dollar amount of securities that could be sold to such investors. The intent of the change was to make it easier for small businesses to sell stock to the public, opening up new ways to raise capital. But it also had a mammoth effect on private offerings in the tax shelter world-now, such offerings could be bigger, broader, and sold to more people than ever before.

By itself, Regulation D would have rapidly expanded the tax shelter business on Wall Street. Combined with the Reagan tax changes, it served as a turbocharger. Almost any firm that wasn't already in the business launched its own tax shelter division. Those that already had them, from Hutton to Merrill to Bache, expanded their operations even faster.

Basically, brokers pushed dubious, doubtful, and dastardly deals earning them fees and commissions with no hope of an increase in shareholder vale. Such devious scheming was not unique to Pru-Bache. Another example is Drexel.

...an insider-trading scandal emanating from Nassau, the Bahamas, out of the modest offices of Bank Leu International Ltd., a subsidiary of Switzerland's oldest private bank. That morning, lawyers for the commission rushed into the courtroom of Federal District Judge Richard Owen in New York. They were seeking an injunction to prevent the transfer of $10 million out of a Bank Leu account controlled by Dennis B. Levine, an investment banker with Drexel.

Shortly after 7:30 that night, prosecutors with the U.S. attorney's office in Manhattan arrested Levine for insider trading. In hopes of cutting a deal, Levine offered the government information about his insider-trading accomplices. The names included one of Wall Street's biggest fish, Ivan Boesky, the wealthy arbitrageur. For the next five years, prosecutors and the SEC, starting with Levine's information, aggressively pursued a trail of evidence that led them to some of Wall Street's most powerful financiers. By the time they were done, a number of prominent executives, including Michael Milken, Drexel's junk-bond wizard, would go to jail. It would be one of the greatest successes in the history of securities law enforcement.

The huge investigations of Wall Street insider trading and market manipulations consumed the working days of almost every top official in the SEC enforcement division. With so much manpower delegated to pursuing the high-profile lawbreakers, few aggressive inquiries were made into whether Prudential-Bache was following the terms of the 1986 settlement. It would be seven years later, after the Boesky and Drexel investigations were finished, before the government finally learned that Prudential-Bache had ignored the strict compliance requirements of its settlement and engaged in a series of even more serious violations.

At Pru-Bache itself the perpetrators over many years included James J. Darr for which there are frequent footnotes on lawyers denying his guilt and convicted felon Clifton Harrison. President Gerald Ford granted a pardon to Harrison on October 9, 1974 which was key in him getting his second change to bilk.

... Harrison launched a drive to win a presidential pardon. A number of his high-profile investors wrote recommendations to the Justice Department. In later years, Harrison would brag to friends that Bob Strauss himself helped lobby for the pardon. With such high-profile support, Harrison pulled it off. President Gerald R. Ford signed Harrison's pardon on October 9, 1974, one month after the pardon of Richard Nixon. Everything was finally in place for Clifton Harrison to start his life over.

[Laura · Rating 4 out of 5]

Great book - learned a lot about an industry I wasn't familiar with and am still amazed at the behind the scenes look at the corporate corruption.

[Jennifer Johnson · Rating 4 out of 5]

Not as good as "Conspiracy of Fools," his masterpiece about Enron, but still interesting.

[Noah · Rating 5 out of 5]

it is a very good story of how the economy works and the intricate laws of tax sheltering

[Eileen · Rating 3 out of 5]

Interesting book about the scandal at Prudential. The really did a lot of bad things to investors. I worked there and had no idea how bad it had been before me.

[Patsy Bishop · Rating 3 out of 5]

I learned much about the stock market and lending and investing money. Interesting read.

[Tamp_kh · Rating 5 out of 5]

Воспринимается скорее как художественная книга, из-за обилия мелких деталей, которых редко встретишь в журналистских расследованиях или документальных трудах. Причём описывается даже не вся Уолл-стрит, а всего лишь одна компания. Но от такой фокусировки книга только выиграла)
Время потрачено не зря, в общем. Как только госфинрегулирование отпускает вожжи - в финансовом мире сразу же создаются предпосылки к будущему кризису - хоть в пределах компании, хоть в пределах мира. Глобализация, будь она неладна...

[Sean · Rating 3 out of 5]

This horror story should have you avoiding retail brokers forever. At the very least, you should never invest in private partnerships again. The book is a long slog that details the crimes committed by Prudential-Bache (later Prudential Securities, now part of Wells Fargo Advisors following several mergers) against numerous customers. However, they were not alone; as revealed at the end of the book, several other firms committed similar frauds. And while they've paid the fines and moved on, the fact remains that these are horrible investments that only benefit the brokers and lawyers.

[Jessie · Rating 5 out of 5]

A story about how regular people lose their money when those who are hired, (investors, bankers, insurance companies, brokers, etc.) to protect their money, instead, use it to further their own agenda.

[Dennis Osborne · Rating 5 out of 5]

Fascinating book about Prudential Bache in the mid 80's and the inside workings of a brokerage house and how deals are put together, marketed and the pressure put on brokers. After reading this you would never invest in a Limited Partnership/ Tax shelter etc.
Pretty scary stuff

[Theresa Nardi · Rating 5 out of 5]

Just like The Big Short, sticky greedy folk

[Sandy · Rating 4 out of 5]

Gripping acount of the fraud committed at Prudential Bache.

[Nina Novichkova · Rating 5 out of 5]

I like narrative writing style about corporate business.

[Olga Vannucci · Rating 5 out of 5]

Wall Street's different from you and me:
They can steal with impunity.

[Edgar · Rating 4 out of 5]

good details, but bit one sided. and last few chapters on settlement is boring.

[Minesweeper · Rating 4 out of 5]

The amount of fraud that went on at Prudential-Bache as related by this book is absolutely shocking. Even more outrageous is the fact that so many defrauded investors were "paid back" cents on the dollar through class action suits that they didn't participate in. (Apparently, to opt out of a class action suit, you have to take action and write a letter to the appropriate court; if you don't, then it's assumed that you want to be part of it, and you're now barred from suing the company individually...?)

I was trying to find out more about the litigation, but as it happened during the pre-Internet days, I couldn't find a lot of corroborating info. The author obviously did a ton of research for this, but it's hard for me to judge how much of the book is composed of facts and how much is anecdotes/fiction. For example, a lot of book consists of conversations that the author was obviously not party to. How does the author know what was said by whom? Yes, he interviewed people, and, sure, important meetings/conversations might be clear in their mind, but who remembers the exact wordings from normal conversations/meetings? (The author did mention that some of the conversations were recorded by Prudential-Bache employees for whatever reason...)

[Harmeet · Rating 4 out of 5]

About financial scandal where Prudential Bache made financial instruments for 'safe' investment. Many thousands of investors were duped, to the benefit of executives. What was striking was the blatant corruption in the form of payoffs to convert junk into safe investment, sold to retirees. Followed by sharp legal practices to short change and deny any problems. It is also the story of people who fought to right things.
A cautionary tale.

[Amanda · Rating 3 out of 5]

Interesting take on a story I didn't know much about. Prudential Insurance wasn't something I knew anything about, but I will say that many of the themes in the story have resurfaced in the last year in a way that makes me believe we are not done seeing this story play out yet again at a later time.

[Jay Tate · Rating 5 out of 5]

This tale of greed and bad behavior is every bit as good as Den of Thieves, and that says loads.

I read this ages ago, and it still sticks with me. When you reward bad behavior, don't complain about bad behavior.

[Ira Douglas · Rating 5 out of 5]

Unbelievable

Well paced story that is too crazy not to be real.
Eichenwald spins a great yarn with many villains and hope that there may be comeuppance, though any who know wall street know how it will end.

[erjan avid reader · Rating 1 out of 5]

this was too long and i did not finish it. The idea i got from this book was summarised in the prologue: huge scams like Enron and Worldcom, Prudential-Bache will occur again! If history teaches us something, it is that it can repeat itself again....