Media Maneuvers: Becker 2.0

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Published August 18, 2006 at 8:35 AM

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Remember Holly Becker, the Lehman Brothers Inc. analyst who was suspected of insider trading a couple of years back? News of the Securities and Exchange Commission's investigation into possible wrongdoing by Becker and her hedge funder husband, Michael Zimmerman of SAC Capital Advisors LLC, was leaked to The New York Times back in January 2003, which ran an explosive story on the probe on the front page of its business section. Thanks to that piece, the couple and their allegedly trading-tip-infused pillow talk became the topic of relentless media attention, and Becker and Zimmerman became yet another post-bubble symbol of Wall Street power gone awry. Indeed, the Times itself ran five high-profile pieces on the SEC's Becker probe in the four-month period from January to April 2003, including one business section front-pager, which said that people in the SEC's enforcement division were urging the agency to file an insider-trading suit against the couple.

But the suit never came. Instead, in October 2004, 22 months after the Times' first story, the SEC closed its investigation into Becker and Zimmerman without bringing any charges against them. How did the Times cover that piece of news? With a 130-word Associated Press story that the paper tucked onto the fourth page of its business section. Not exactly prime play.

Well, Ms. Becker, meet John Mack. The CEO of Morgan Stanley has recently had his own brush with The Times in regard to an SEC investigation, and in some ways, the situation is playing out in a strikingly similar way to the Becker mess. It all started with a front-page story in June that fingered Mack for possibly passing on nonpublic information to hedge fund Pequot Capital Management Inc., based solely on allegations leveled by Gary Aguirre, a former SEC lawyer and self-styled whistleblower who claims he was fired by the agency after requesting to interview the politically well-connected Mack.

The Times did not describe what evidence Aguirre had to support his rather serious insider-trading charge against Mack, nor did the paper supply any of its own. (And Aguirre has not publicly disclosed any of his evidence since.) Still, the story has remained alive throughout the summer, fueled in part by Congressional hearings on hedge funds. It has been interesting to watch how the Times has covered the saga's different developments, including which ones it has chosen to ignore.

About one month after the Times' first Mack piece appeared, CNBC broke the news that the SEC decided to interview the Morgan Stanley CEO about the Pequot matter and reopen an investigation into Aguirre's dismissal. "Why the SEC has now changed its position is unclear," the Times later informed. It added that the move came ahead of a Senate Banking Committee hearing on hedge fund regulation, but then left its readers to connect any dots between the two events.

The Wall Street Journal, however, wasn't so coy. Its take on the SEC's apparent about-face: "SEC Chairman Christopher Cox is expected to appear next week before a Senate Banking Committee hearing on hedge fund regulation. The request for Mr. Mack's testimony may reflect Mr. Cox's wish to avoid possible criticism that the agency didn't scrutinize Mr. Mack." CNBC's Charles Gasparino was even blunter: "I think this is kind of a little bit of a rear-end-covering move," he told viewers of "Kudlow & Company".

But things really got interesting when Mack's SEC testimony about the insider trading charges actually came on Aug. 1. Newspapers ranging from The Seattle Times to Newsday to The Salt Lake City Tribune carried brief accounts of Mack's deposition, which they pulled from wire reports. And The Journal and the Financial Times ran their own stories on Mack's testimony, in which he reportedly said he had no advance knowledge of the transaction that Aguirre claims he blabbed about to Pequot. But The Times — the paper that first splashed Aguirre's allegations against Mack on its front page — didn't run a single word on Mack's actual appearance before the SEC.

A look at the pieces that did cover Mack's SEC testimony might offer an explanation as to why. Several outlets reported that it seemed unlikely that charges would be brought against Mack. "So far, the SEC hasn't found evidence to support the theory that Mack may have tipped Pequot, a Westport, Conn.-based hedge fund, and the agency may notify him that the investigation is closed if nothing further comes to light in the next few weeks," reported Bloomberg, sourcing a person familiar with Mack's testimony. Indeed, Gasparino, who was the first to report that Mack was deposed, noted on "Squawkblog" that the SEC "is considering the unusual, and some would say, unprecedented move of not just officially alerting Pequot and Mack that they are cleared of possible insider trading charges, but also releasing all the evidence in the probe." One reason for taking such a step: "Some people in the commission believe that if there isn't enough evidence to charge Mack, he deserves to have his name cleared."

The Times' silence on Mack's testimony reminds us of how the Gray Lady handled an incremental development in the Becker case. A few days after the paper reported that the SEC enforcement division had recommended filing charges against Becker, then-SEC Chairman William Donaldson warned employees via e-mail not to leak sensitive information about investigations to the press. And he singled out stories about Becker and Zimmerman for being "particularly outrageous." The e-mail, which was itself leaked to the press, was covered by a bevy of wire services, whose reports were picked up by the Los Angeles Times and the Chicago Tribune. But it was completely ignored by the Times, which had, until then, been giving the Becker story full scandal treatment.

Donaldson's e-mail was dated April 29 — the same date the Times a few days earlier had said the SEC would decide whether or not to file suit against Becker and her husband. But April 29 came and went without a peep from the paper, which remained silent until 18 months later, when it ran that 130-word AP story essentially clearing the couple.

So, is that the kind of nearly invisible coverage Mack has to look forward to if he's cleared of possible charges? To be sure, we have no idea if Mack is guilty or innocent; maybe the SEC, or Aguirre, has something on him that, as of this writing, has yet to come to light. But one thing we do know is this: In both the Becker and Mack cases, the Times has shied away from covering developments that can lessen the value of its original, explosive "scoops," while concentrating on those that seem to further them. Last week, for instance, the paper ran a story on a letter that Senators Arlen Specter and Charles E. Grassley wrote to Cox criticizing the SEC's Pequot investigation for being "incomplete." So even if the SEC clears Mack, the Times, it seems, won't buy it.

If the SEC does release the details of its probe in order to clear Mack — which it hadn't done by press time — it will be interesting to see how the Times plays it. Hopefully, it will give it more attention than 130 words from the AP. And if the paper deems the SEC's information incomplete, let's hope it tells us what's missing. —Yvette Kantrow

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