© Business Insider
Then there's the wrong way - as Gary Foster found out the hard way in June 2012 when he was sentenced to eight years in the slammer for embezzling more than $22 million from Citigroup and compounding his lack of etiquette in the most unforgiveable fashion - he wired the funds to Citigroup's arch rival, JPMorgan Chase.
Foster broke multiple etiquette rules for stealing money on Wall Street. First, his crime was too simple. He made it just too easy for prosecutors to explain to a jury how he wired funds from various corporate accounts at Citigroup, using fake contract numbers, to his personal accounts at JPMorgan. A man lacking so little criminal creativity is eschewed on Wall Street; he clearly has no future there so he might as well go to jail.
Foster broke another etiquette rule when he had the audacity to buy a luxury home in Tenafly, New Jersey rather than Greenwich, Connecticut. You're just not going to build an adequate Rolodex of connections to get you out of jail in Tenafly.
Consider Foster's simple plan with the bold and wickedly creative plan hatched by Sanford (Sandy) Weill to extract money from Citigroup. Weill's plan became colloquially known on Wall Street as the Count Dracula stock option plan - you simply could not kill it; not even with a silver bullet. You couldn't prosecute it because Citigroup's well-paid Board of Directors was rubber-stamping it.
Weill's stock option plan worked like this: every time he exercised one set of stock options, he got a reload of approximately the same amount of options. Now, stock option grants are supposed to be based on outstanding performance benefitting the shareholders. But even in years when Citigroup was getting dragged through the press for facilitating frauds at WorldCom and Enron and issuing fraudulent research to the public, Weill was reloading the hell out of his stock options.
Graef "Bud" Crystal, the corporate compensation expert, is the man who coined the Dracula analogy for Weill's stock options. Writing for Bloomberg News, Crystal explained that between 1988 and 2002, Weill "received 96 different option grants" on an aggregate of $3 billion of stock. Crystal says "It's a wonder that Weill had time to run the business, what with all his option grants and exercises. In the years 1996, 1997, 1998 and 2000, Weill exercised, and then received new option grants, a total of, respectively, 14, 20, 13 and 19 times."
When Weill stepped down as CEO in 2003, he had amassed over $1 billion in compensation, the bulk of it coming from his reloading stock options. (He remained as Chairman of Citigroup until 2006.) Weill wasted no time in cashing in some of his chips. One day after stepping down as CEO, the Citigroup Board of Directors made an exception and allowed Weill to sell back to the corporation 5.6 million shares of his stock for $264 million.
Weill did not have to concern himself with driving down the price of his shares when that quantity of shares flooded into the market. His Board kindly negotiated the price at $47.14 for all of the shares. Two years after Weill stepped down as Chairman, Citigroup was insolvent and its shares were trading at 99 cents. Regulators discovered that the company had hid subprime debt off its balance sheet and was drowning in toxic debt. The company became one of the largest recipients of taxpayer bailouts and below-market-rate loans from the Federal Reserve.
The economic prospects of the United States, the newly poor, the unemployed whose benefits have run out, are all paying the price for Sandy Weill's wickedly creative compensation schemes. The hodge-podge of companies that Weill had assembled prior to his convincing John Reed of Citicorp to merge that huge bank with Weill's Travelers Group, required the repeal of the Glass-Steagall Act - the depression era investor protection legislation that barred FDIC insured banks from merging with their casino cousins, investment banks and brokerage firms.
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