by Jim Salim with R. Foster Winans.
(Xlibris, Philadelphia, 258 pages) $28.95.
reviewed by Gregory Bresiger
The professionals on trading desks are mostly con artists. They instinctively front-run and clean up for their firms. Listen to the stock recommendations of the analysts at the big firms, then go the other way. Penny stock tips, and penny stocks in general, are nothing less than scams. The corporate takeover craze of the 1980s was a very good thing because many of the target managements were weak and often cared little for shareholder values. Wirehouse brokers are mostly salesmen and not very bright ones.
And these are just some of the charges made by a well-heeled, professional investor who conned the con artists of Wall Street. Nevertheless, this book also details how he also shot himself in the foot several times. Jim Salim goes through the story of his investing life from his first exciting moment of discovering The Wall Street Journal as a child of Lebanese descent growing up in Natchitoches, La. He made his initial million investing on Wall Street as a young man, then lost it all just two years later at age 29. Salim has written, with the help of former Wall Street Journal columnist R. Foster Winans (Yes, the same one whose career as a Wall Street Journal Heard on the Street columnist was short-circuited by scandal), a compelling book with many appealing qualities.
The most creditable thing about the book is that the angry Salim names names, gives dates and goes through a step-by-step history of his triumphs as well as his investing disasters. For example, he despises Credit Suisse First Boston, claiming it lied to him on a golf complex deal in Arlington, Texas, in which they were partners. He has harsh words for Merrill Lynch. He practically calls for the abolition of penny stocks and warns that wirehouse brokers – with the exception of a few reputable professionals who Salim names – want to pick the pockets of the average investor and usually do it.
Wirehouse brokers, Salim argues in a complaint as old as Wall Street, are just salesmen who would try to sell the Brooklyn Bridge tomorrow if their masters told them to do so.
Front-Running
And then there are trading desks. Salim all but says they are congenitally incapable of honesty because they have a weapon that no regulator has figured out how to stop: front running.
"Front-running is one of the hardest swindles to prove because these enormous trading operations have customers all over the world, and they control their own paperwork," (page 95), according to Salim. "They've got a hundred ways to cover their tracks." However, in chapter 8, Salim details how he "swindled the swindlers" on buying and selling of May Petroleum, a story that makes for fascinating reading. In the end, Salim claims he made, "another ton of money" because of the duplicity of Wall Street.
Salim praises the Big Board as the "most honest and fair market" (page 119), but questions the fairness of Nasdaq and other markets, which he charges are invisible. "At trading desks within brokerage firms, the transactions are done primarily on the phone or between traders or electronically. There may be as many as 40 market makers in a particular stock, and each one posts its own bid and ask on a computer network…All these trading desks at all these firms serve one purpose: to make money for the firm. And you pay the price," Salim writes (page 119).
Although one admires Salim's avenging angel campaign against the thieves of the business, one wonders, at the end of the book, why his own investments sometimes blew up. And, in reading about his outrage against Wall Street, one questions sometimes if he didn't, in fact, tacitly become a part of the system that he abhors. Take the issue of penny stocks.
In another compelling part of the book, Salim tells the story of a penny stock manipulator of the 1980s who seemed to be beyond the reach of regulators. That's because this sleazebag had no licenses but accomplished his chicanery through a network of venal brokers who executed all his transactions. The brokers would help distribute overpriced shares of his penny stocks. This boiler room operator would entertain his brokers at the best restaurants, "buy them beautiful whores, and promise them a cut of the shares they sold." (page 108). After bidding up these sleazy stocks, Frank, the boiler room operator, would jump out with millions of dollars of gains. Salim condemns him in his book, yet Salim concedes that he used his knowledge of Frank's operations to make money.
"Frank," Salim said he told this boiler room operator, "why don't you do me a favor sometime? Tell me before you start this nonsense and let me make a little money!" (page 108). Later on, Salim admits that he did tip him about a couple of deals and that Salim made a couple of hundred thousand dollars because of this boiler room operator, who later told him, "you owe me, you son of a bitch." (page 109).
Somehow, all of Salim's complaints about penny stock scams ring hollow after this episode, especially when he quotes Frank as calling him a, "goody two-shoes." Salim strikes me as a very bright man. But I would not mistake him for a man of rectitude when the subject is markets. Yes, he knows where the bodies were buried, but didn't he have some moral responsibility? And didn't he profit from some of these outrageous operations? These are questions that Salim should answer.
Also, Salim doesn't explain how someone so smart, so well tuned in to the scams of Wall Street, allowed himself to be hoodwinked on The Lakes of Arlington luxury housing development. Salim, a great investor and trader, thought he could make tens of millions of dollars on a project that he was warned could easily go over budget. He ignored the warnings. Eventually, Salim is in over his head and has to cut in CS First Boston for a piece of the deal. Its financial backing, he believes, will ensure that the project will be completed.
CS First Boston double-crosses him, Salim claims, and guts the projects. That means tens of millions of dollars of Salim's investment goes down the drain. Salim is angry. He won't let "the suspender boys" get away with it. He'll sue, by gosh. His attorneys, sifting through the documents he signed with CS First Boston, find a smoking gun agreement that basically holds the investment bank harmless no matter what it does. It allows no legal recourse. Salim's name is on the document. There is no doubt he had signed it. Suddenly, the furious Salim hasn't a leg to stand on.
Marx Brothers
His account of this mess is fascinating: "At the closing, the CSFB attorneys asked me to sign two blank pages, telling me these belonged to documents that were copied and would be attached later. But they assured me it would have no effect on the deal," (pages 237) he writes. Salim's situation was so zany that it reminds one of a line out of a Marx Brothers movie in which someone is asked to sign a contract. Groucho: "Hey, that's a blank sheet!" Chico: "That's ok. We fill it in later."
Salim's excuse is that the CS First Boston attorneys, who were not there to protect his interests (and where were Salim's attorneys?), told him that this was, "just boilerplate, routine stuff." That routine stuff cost Salim $14 million. How could this have ever happened to Salim? He had seen some of the biggest crooks in the business and had seen through their tricks. He had beaten some of them at their own game. Jim Salim is a very smart man. But he is not quite as smart as he thinks he is.
