Saturday, January 24, 2009

Steel Under Investigation

The Wall Street Journal is reporting that the Securities and Exchange Commission has launched an investigation of Duke Trustees chairman Bob Steel.

Over the summer, struggling Wachovia Bank had named Steel as its CEO--preposterously citing his ability to lead institutions in a “time of turmoil” as a criterion for the selection. In a CNBC broadcast on September 15, Steel asserted that Wachovia had a "great future as an independent company." He added, "But we're a public company, so we're going to do what's right for shareholders, I can promise you that. But we're also focused on the very exciting prospects when we get things right going forward."

Within two days, Steel was privately discussing a merger with JP Morgan--contradicting his assertion that Wachovia had a "great future as an independent company."

The Journal notes that "whether Mr. Steel misled investors and violated securities laws will depend on what Mr. Steel knew at the time of his comments. In general, securities laws say that an executive can't knowingly make a false statement that is material to the company's prospects."

Anyone who followed the lacrosse case wouldn't have been surprised by Steel's penchant to try to "spin" the press with misleading information--this is, of course, the same Bob Steel who privately claimed knowledge of "terrible, terrible" things in the lacrosse captains' house. He has never explained the evidence for which he based his claim, which the details presented in the Attorney General's report wholly rebuffed.

It is unclear whether Duke will allow Steel to remain as chairman while under SEC investigation--although, given the University's unwillingness to demand accountability for his failures in the lacrosse case, I wouldn't expect Steel's removal on this matter anytime soon.

[Update, 3.54pm]: A commenter correctly points out that Steel is entitled to the presumption of innocence. The mere fact of an investigation, however, places Duke in a delicate position. A chief responsibility of a BOT chairman at any university is raising and managing funds. I'm not aware of any recent case (at a prominent university, at least) in which a BOT chairman under investigation for alleged financial improprieities didn't step aside, if only for the duration of the investigation.


Anonymous said...


Let us practice what we preach and NOT rush to judgement here.

Despite the fact that we know this guys is a train wreck with questionable ethics and more than willing to toss young students under the bus and screw over the university which had placed him in a position of trust, this is NOT proof he committed a major federal crime punishable with huge fines and hard time.

ES Duke 1990

Anonymous said...

if he didn't do it, whatever he did was bad enough.

Anonymous said...

One could only hope there’s enough karma in the universe that if ever Steel were to screw over his progeny in the same fashion he has Mike Pressler, the Duke three and their teammates, and now apparently Wachovia investors, then said progeny would one day have “It’s Not About The Truth” carved on Steel’s headstone.

Anonymous said...

The previous commenter is absolutely correct. I might only add that I personally look forward to Steel being given the opportunity to "prove his innocence."

Yet, it is clear..."what ever he did was bad enough."

Anonymous said...

Whatever financial shenanigans he may or may not have indulged in, they rank far below a willingness to aid and abet the false allegations of rape which imperiled the liberty (and lives) of three defendants whom he knew to be innocent.

2008 GOALS said...

Well said. It's not like he's ever worried about facts before, or displayed integrity in other environments, but I won't rush to judgment--like he did.

Anonymous said...

Clearly, however, Mr. Steel has to step down to stop those pictures.... It doesn't mean that it's fair.... It doesn't necessarily mean I think it is right.... It just has to be done.

One Spook said...

I'll go along with ES Duke 1990 @ 3:09 PM's admonition of a presumption of innocence for Steel.

But, let's look at Steel's "record." I think Bob Steel is a "One Trick Pony" and here's why.

Steel is a Durham native and perhaps he drank too much of the water there which, as we've seen with others in that city, causes one to view the world upside down.

After leaving Duke, Steel took a position selling investments. The "one trick" that is essential for success in that field is to convince potential investors that an investment that is being sold by the investment house one represents is indeed a "good deal."

Steel was very talented at doing that and he rose to a high position with his company, and Steel made a lot of money because people who relied on his advice, in turn, made a lot of money.

One of the essential elements in convincing potential investors that a given investment is a "good deal" is to counter, suppress, and in some cases, actually deceive people about negative aspects of a particular investment.

In order to protect the public from such deception, the SEC has laws that are intended to discourage and prohibit investment brokers from deceiving investors ... they cannot lie about negative material facts they know about a particular company, and they cannot make statements about a company which greatly exaggerate its potential. A company prospectus is very carefully worded to conform with such SEC requirements.

But, brokers work very hard to ensure that the "brand name" of a particular investment they are selling remains highly admirable in the eyes of potential investors.

This is why, to protect the Duke "brand name," Steel said to the New Yorker magazine in August 2006, "“we had to stop those pictures [of the players practicing]. It doesn’t mean that it’s fair, but we had to stop it. It doesn’t necessarily mean I think it was right—it just had to be done.”"

And that is why Steel, to support Brodhead, said in a letter to "The Duke Community" on April 11, 2007 "Throughout the past year President Richard Brodhead consulted regularly with the Trustees and has had our continuing support. He made considered and thoughtful decisions in a volatile and uncertain situation."

KC Johnson might consider Steel's support of Brodhead as analogous to George Bush's support of former FEMA director Michael Brown when Bush said, "Brownie, you're doing a heckuva job."

Fast forward to the current SEC investigation of Wachovia. Others have commented here that Steel "ruined" Wachovia. I disagree with that.

To me, what Steel did is what he's done before; he represented that Wachovia had a "great future as an independent company." when in fact, it was a failure, a poor investment, and not a good purchase for any investor.

It appears that Steel very carefully represented Wachovia (just like he represented Duke and Brodhead) to be something that it was not.

That is Steel's "one trick."

And that is why the SEC is investigating him.

Anonymous said...

Let's not forget, it wasn't the guilt or innocence of the players which warranted their suspensions from Duke...

It was the seriousness of the allegations..


Anonymous said...

I posted this over on John in Carolina earlier today...

If the goal is to redefine virtue then maybe we've achieved that end.

Stimulus plan repeals big tax break for banks

"...To address the financial industry meltdown, the Treasury Department last fall issued a new tax rule to make it more attractive for healthy banks to buy troubled ones hit hard by the mortgage crisis. It allowed healthy banks to avoid billions of dollars in taxes by offsetting their profits with the losses of the banks they acquire.

Before, the merged bank could write off only a limited amount of the losses. Removing much of the restrictions enabled the acquiring banks to make huge reductions in their tax liabilities.

In some cases, the tax breaks exceeded the cost of acquiring the troubled banks. Wells Fargo & Co. (WFC), for example, made a bid to acquire Wachovia Corp. (WB), just days after the change in tax rules was issued Sept. 30. Wells Fargo paid $14.8 billion in a stock deal to buy Wachovia, but stands to reap about $20 billion in additional tax savings from the transaction, according to analyses by private tax experts..."

There are several events that are disconcerting.

1. We know when Bob Steel was confirmed for his post within the Treasury Department, however we don't know the relationship between his consideration prior to the hearings and the lacrosse hoax actions on his part. Did his being considered for the Treasury post influence his action/inaction relative to the hoax?

2. We know Bob Steel, while at Treasury, was involved in the decision to open the discount window to non-bank institutions. Non-bank institutions include his former employer Goldman Sachs.

3. We know the Treasury created the tax deal mentioned in the article above. Did Mr. Steel have any authorship in that tax treatment ruling? It is important to understand that the tax rule was not Congressionally enabled.

4. We heard what Steel said about Wachovia on Mad Money with Jim Kramer.

5. We know that the toxic problems Wachovia acknowledged went up substantially within days of the airing of the Mad Money broadcast which is the basis for the SEC probe.

6. We know that Citi was dumped on by Wachovia and that Wachovia accepted a better deal from Wells Fargo. I seem to recollect that one basis for choosing Wells Fargo as a suitor was that WF did not require government support.

7. We know per the linked article above that the deal was wholly government supported based upon favorable tax treatment for Wells Fargo. WF received $20 billion in tax breaks to acquire Wachovia for $14.8 billion.

8. Ironically we know that Duke hired Jamie Gorelick to defend Duke. She of course, was an employee with Fannie Mae. While there Fannie Mae cooked their books and she received north of $25 million in bonus money. The fact that FNMA as a GSE strongly lobbied Congress NOT to institute reforms (multiple times) is appalling. The $1 trillion in FNMA sub-prime loans is the root cause of the failure of our system. Of course many of those toxic loans were originated by Wachovia (prior to Steel being named as CEO).

Anonymous said...

That's right. Let's not rush to judgment against Steel the way he moved like a bull in a china shop against the LAX players. Give the man his due--something TERRIBLE did happen. It just wasn't something that the LAX players did. It was done by Boardhead, Steel, the 88 Klan members, and a few other admeanistrators.
Wow, talk about coming a full turn.......

Anonymous said...

Well, we know that whatever he did was bad enough. Let us never forget that he made an overt decision to help a corrupt prosecutor frame innocent people, all in the name of "best for Duke."

Let him now enjoy the same treatment that he gave David Evans, Collin Finnerty, Reade Seligmann, and their families, helping Nifong to wrongly charge them with crimes they never committed. I don't believe in Karma, but this is as close as it comes.

Anonymous said...

I will presume innocence, but I would like to know why he couldn't have made another public statement 2 days later amending his earlier comments. He didn't have to say that Wachovia was in the market, but he could've said that all options will be explored.

I hope it does not come out that Steel decided to throw investors or others under the bus in the name of public relations. We shall see.

Anonymous said...

Steel is also a named defendant in the civil suit filed against Duke, Durham etc. by Bob Ekstrand on behalf of several lacrosse players. The suit alleges, among other things, that Steel directed Duke's actions which involved the violation of various federal and state laws , as well as the University's own policies. Assuming Steel is very involved with Duke's defense against the suit, it seems that there may be a conflict between the interests of the University and his own. The responsibility of the BOT, and its Chairman, is to provide independent oversight of the University's /Administration's actions. As a named defendant in the civil suit, with possible consequences to him personally, I believe it's questionable whether Steel can fulfill his Chairman's responsibilities.

Given the civil suit and the SEC investigation, it seems that Duke's best interests would be served if Steel resigned from the Board as soon as possible.


Anonymous said...

Could it be that the SEC investigation would question why he was hired so close to the merger which would coincidentially cause interrogatories that would require testamonies ralating to his activies in the LAX scandal to determine his reputation vis-a-vis chairman of the BOT, or would the presence of the lawsuit prevent such testamonies?

Big Al

Sid said...

He should step aside or take a leave of absence during the investigation. If cleared, he can resume his duties.

Hell, even he approved cancelling the season when there was no evidence against the LAX team.


Anonymous said...

"Life sucks....bad things happen to good people and you better get used to it."

Robert Steel to Lacrosse parent over the termination of Coach Pressler

In a just world, sometimes true justice is served and bad things happen to bad people and that may really suck for Robert Steel.

Gary Packwood said...

I would imagine that Mr. Steel will need to explain his own actions in light of the testimony he gave as Under Secretary for Domestic Finance before the United States Senate last April.
Under Secretary for Domestic Finance Robert K. Steel Testimony Before the Senate Committee on Banking, Housing and Urban Affairs. April 3, 2008.

"We seek to strengthen market discipline, mitigate systemic risk, enhance investor confidence and market stability, as well as facilitate stable economic growth."

Debrah said...


Excerpts from draft report on off-campus party houses

Jan 25, 2009

The following are excerpts from a draft of the report, recommending policy changes to quell the off-campus party house scene, that Trinity Heights residents will present to Duke University and city officials next month:

"About 800 Duke undergraduates (half the senior class) live off-campus in Durham every year. Only a small fraction of these organize disruptive parties. But this small group -- at least three houses in Trinity Heights, for example -- generate frequent 911 calls to [the] Durham Police Department and Duke's campus police. Ultimately, the never-ending pattern of these problems has caused long-term residents to move out of our neighborhoods. Both the city and Duke should understand that these party houses have caused disinvestment in the central city, and will continue to do so unless policy changes are made to mitigate this problem."

"The 2006 lacrosse incident thrust the disruptive and abusive behaviors caused by Duke party houses into a harsh national media spotlight. Although this event had enormous negative consequences -- legal and financial -- for both Duke and Durham, it is by no means clear that Duke has yet enacted any major changes of policy for off-campus student life in response."

"It is time for Duke to take more responsibility for the behavior of its students off-campus. Residents should not have to bear the burden of policing problems caused by party houses year after year."

"Duke campus police has a stated mission to 'keep the peace.' We recommend they adopt the Durham Police Department's 'zero-tolerance' policy toward noise and behavior problems arising from Duke student party houses. Enforcement of zero tolerance will require more Duke police officers. Duke officers claim to police parties before they get out of hand, yet we in Trinity Heights never witness any evidence of this. Our experience is there are too few officers on duty in a given evening to make any meaningful difference."

"Students do not currently understand how to hold a successful party without disturbing neighbors. Parties must be kept indoors. Eighty to 100 guests is not a manageable population for most houses in our neighborhoods: fire risk and lack of egress are major problems for social events held in older homes. Duke should meet regularly with executive officers of each of its fraternities, and require them to educate their members about acceptable party behaviors."

"Student Affairs has told us that legal restraints prevent full communication to complainants of disciplinary actions against students whose behavior is found to violate city ordinances. But this lack of feedback perpetuates a sense that documented disruptive behavior off-campus is never held accountable and rarely punished. We do not ask Duke to compromise the privacy of its students ... [but] what neighbors need to see is clear evidence that students are being held accountable."

"Fraternity party houses do not belong in the neighborhoods of Durham. The ongoing development of Duke's Central Campus offers the ideal opportunity to make this change in student housing. Duke students involved in the task force often mentioned that many students prefer to socialize on campus, avoiding the hassle of transportation to off-campus events. Duke fraternity members we have spoken to say they would welcome a move back to campus. Currently, Duke fraternity members must pay a fraternity housing fee to national chapters, a fee that doesn't benefit them since Duke lacks dedicated fraternity housing on campus."

Debrah said...

Check out the comments below this article with Durham nut case Vasile.

Trinity Heights neighbors want partying controlled

BY RAY GRONBERG : The Herald-Sun
Jan 25, 2009

DURHAM -- Talks between Duke University, Trinity Heights residents and city officials are winding down with the residents poised to formally request that the school take more responsibility for policing the behavior of students who live off campus.

The residents also intend to ask Duke to "take long-term steps to move student partying out of neighborhoods and onto campus, including building fraternity houses on campus," according to a draft of the neighbors' report given recently to city officials.

"Fraternity parties don't belong in neighborhoods," the draft said, adding that Durham leaders should help press for the changes "both to protect the quality of life of [their] residents and to protect central city neighborhoods from disinvestment."

The three-way talks have been under way since August and are scheduled to conclude next month. They began after 13 Trinity Heights residents complained that a party-house scene had emerged in their neighborhoods after members of a couple of fraternities began renting houses there.

Duke only allows seniors to live off campus and doesn't have true fraternity houses on its property.

Parties in the rentals have caused trouble this school year on both Clarendon and Onslow streets, said Christine Westfall, a Trinity Heights resident and co-author of the draft report.

Westfall said she and other residents have been forced to call Durham police regularly this school year to quell loud late-night parties. At least one of those calls sparked what she termed "a confrontation" between students and police.

The incident occurred on Clarendon Street. A neighbor who witnessed it "saw the students living in the house yelling at police officers," Westfall said.

The neighbors want Duke police to take the lead in policing the party scene because city officers have other, more serious problems to deal with, Westfall said. Also, "It's not fair for the city to be shouldering a [financial] burden when it's a university problem and they have jurisdiction," she said.

An extended-jurisdiction deal with the city gives Duke police authority to patrol the neighborhoods adjoining the campus. The Duke University Police Department's writ extends east to North Duke Street, half a mile beyond the areas Westfall said the problem affects.

Neighbors want Duke police to adopt the same hard-line, "zero tolerance" attitude to noise and other nuisance-law violations that their counterparts from the city do. They also believe Duke officials will have to hire more police officers if it is to patrol the area effectively.

As for the fraternity houses, residents believe party-house scene persists because the on-campus dormitory space that's now available to the groups is cramped and "not designed to accommodate parties," Westfall said.

But residents insist the surrounding neighborhoods aren't suited to host them either. They fear that left unchecked, the scene would spur owner-occupants to flee, putting the district's housing stock on a downward spiral toward blight.

Duke officials have asked neighbors to make several minor factual corrections to the report, so that it uses the correct terminology in describing the on-campus bureaucracy and the correct numbers of Duke police who work each shift.

Vice President for Student Affairs Larry Moneta said Friday that he wouldn't comment yet on the report's recommendations.

"I am not prepared to respond to any of it until we have the [last] meeting," Moneta said. "It would be inappropriate for me to have a public conversation until we actually have one with the group with which we're meeting."

But he, Westfall and City Manager Tom Bonfield all said the talks have been, to use Bonfield's word, "positive."

"We have had honest and forthright conversations," Moneta said.

A Voice

Submitted by bobv on 01/25/2009 @ 08:23 AM

The Durham residents finally get a voice!!

Bob Vasile,Durham

Great for the Jury

Submitted by fishwrap on 01/25/2009 @ 09:41 AM

The off-campus Dookies ongoing arrogant disrespect
for the law shall make for great discovery and testimony
in the upcoming civil lawsuit trials.

That is if they ever get to trial, and all these lacrosse
shakedowns are not summarily dismissed by the
federal judge as complete frivolous, malicious nonsense.

Do the lacrosse shakedown artists really want to risk
discovery and testimony, which will once again paint their
children as the boorish, out-of-control juvenile delinquents
they really are?

By the way, lacrosse cranks...the victim still maintains
she was assaulted.

Kick 'em out

Submitted by Raleighite on 01/25/2009 @ 09:53 AM

What has happened to Duke is happening all over, a lack of discipline among people. Forty years ago they kicked people out for good for a lot less.

Anonymous said...

Yes. I will presume his innocence, but don't presume that I will ignore the irony.

Anonymous said...

I predict that Steel's next move will be to declare bankruptcy.

Duke Prof

Anonymous said...

It may be a stretch, but I cannot help but see parallels in the preferences displayed for a self-flattering metanarrative over mundane observable data by both the World-of-PC and World-of-Financial-Bubbles. For a guy like Steel, I can easily imagine him becoming quite used to saying to himself "It is not about the Truth." Heck, how could he go on trying to sell built-on-thin-air investments if he did not think that way?

Anonymous said...

9:47 AM

The arrogance of Steel mirrors the arrogance of the Duke faculty and the financial community. Our society has deconstructed its values to the point that only money and power and arrogance and status remain . . . the risk of doing business by the likes of Steel and others were so marginalized by lying that there was no risk or so it was thought . . . the problem for them is . . . no one believes them anymore . . . it is trust that undergirds any financial system and Steel and others no longer trust one another. Quite frankly, I do not trust them either . . . faculty or finance.

gak said...

I didn't get very far reading the comments but i'm sure the Duke newspaper will call for him to resign. I believe he might try to stay on but I think he will be eased out. I wonder what his legal bills will be for this. I know he will get legal defense from duke for the LAX case, but who insured this deal

Anonymous said...

"I predict that Steel's next move will be to declare bankruptcy.

Duke Prof"

"1/25/09 3:00 PM"

Oh goody, do you think he might have some guitars for sale ?

Anonymous said...

Hmmmm. It seems to me that there is a big difference between presuming innocence for the Duke Three and presuming innocence for Steel.

In assessing whether anyone has committed criminal conduct, two questions need to be asked: 1) What acts were actually committed, and 2) Were those acts illegal?

In the case of the Duke Three, the acts they were alleged to have committed were certainly illegal -- 2 was settled -- and the key question was 1, had they committed those acts? Which they hadn't. Those who guessed that they had were guessing wrong.

In the case of Steel, I'm not aware of there being any doubt that he publicly boosted a stock that he knew was not worthy of such boosting. Question 1 would seem to be sufficiently answered. The question that remains is question 2.

It does not seem to be the same thing for those with knowledge of the relevant law to speculate on its correct application in Steel's case, as it was for those who THOUGHT they knew the evidence against the Duke Three to speculate upon what had actually been done in that house.

I could be wrong, but I think this point at least deserves consideration.

Anonymous said...

Well even if Bob Stalin is innocent but loses his case, I expect he'll be able to prevail upon appeal.

Anonymous said...

I hear that the Enforcement Division at the SEC has been a mess, so the fact the SEC has launched an investigation of Bob Steel comes as something of a surprise.

Generally, securities laws do say that an executive can't knowingly make material, false statements about a company. I am not aware of any CEO being charged with a crime, though, for making "false" statements, unless the CEO did something at the same time along the lines of selling large numbers of shares from his personal account based on insider information just before the stock tanked. This is the Ken Lay scenario as I recall. I would be interested if anyone could recall charges being brought simply on the basis of a fairly vague but ultimately untrue bit of bragging.

This cannot be a very comfortable time for Bob Steel.

From watching Mad Money that week, I do know that Mr. Cramer was highly incensed about the swift unraveling of Mr. Steel's comments.


Michael said...

A huge amount of action over here recently.

I'm as upset (that's a mild word) about the financial world as your typical person that's seeing the economic world fall apart due to the actions of the greedy and wealthy few.

I've seen examples of highly questionable behavior by CEOs but the usual result is a shareholder lawsuit which gets paid off. Going on Mad Money is being pretty in-your-face about it and you're just asking for it.

Great coverage on the continuing cases.

Anonymous said...

I assume Steel has not hired an attorney. After all, if he's innocent, why would he need a lawyer?

Anonymous said...

Quote from the Senior Judge in the Ebbers/Worldcom conviction:

"The securities fraud here was not puffery or cheerleading or even a misguided effort to protect the company, its employees, and its shareholders," Senior Judge Ralph K. Winter wrote. "The methods used were specifically intended to create a false picture of profitability even for professional analysts that, in Ebbers' case, was motivated by his personal financial circumstances."

Another benchmark for what is considered fraud.