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SEPTEMBER 22, 2003
Edited by Ira Sager Talk Show "I put this behind me....I am not going to debate the issue, or the size of future payments." -- New York Stock Exchange Chair Dick Grasso, declining an additional $48 million on top of his $140 million compensation Eagle Eyes on Prudential Woe is Prudential Financial. Brokers at the Boston office are being investigated by the Massachusetts Secretary of the Commonwealth for questionable trades of mutual-fund shares. And BusinessWeek has learned that the firm's new stock-rating system violates one of the first rules adopted by the NASD to clean up Wall Street's research mess. On Sept. 8, Prudential changed its analyst rating categories to "overweight," "neutral," and "underweight." That's O.K. But under rules adopted by the NASD last August, firms must explain in their analyst reports how the terms relate to the three-tiered rating system of "buy," "hold," and "sell." Prudential didn't. In a report issued on Sept. 10 about Unilever, it only says that "underweight" means that a stock isn't expected to perform as well as other stocks in the same sector. "The idea was to make it clear when you were saying buy, hold, and sell," says Charles Hill, research director at Thomson First Call. After being contacted by BusinessWeek, Prudential blamed its failure to explain the new ratings on a production error. The firm said it will make its ratings system clearer in future reports. The NASD declined to comment. Prudential's other troubles may be harder to fix. Since early July, William Galvin, Massachusetts' Secretary of the Commonwealth, has been investigating individual brokers in the Boston office. Galvin has issued a subpoena seeking documents from Prudential. He also sent letters to five mutual-fund companies, including Eaton Vance (EV ) asking for details on broker trading. Galvin is looking into whether a dozen top brokers hid their identities to buy and sell large blocks of mutual-fund shares over short periods of time -- a practice called market timing. It isn't illegal, but if the traders hid their actions, they violated state laws prohibiting fraud. "We think there was deceptive trading going on," says an investigator. The Securities & Exchange Commission also is looking into Prudential's trading. The agency declined to comment. Prudential and Eaton Vance say they're cooperating with the probes. By Emily Thornton and Faith Arner   "You've Got Pineapples" Stephen Case, gentleman pineapple grower? It's not so crazy when you consider that Case grew up in Hawaii. Since resigning as chairman of AOL Time Warner (AOL ) in May, he has been stepping up his investments back home. In late July, Case boosted his stake in Maui Land & Pineapple (MLP ) to 43.5% from 41.5%, according to SEC filings. He has an option to increase his stake to 56%. Case, who has $500 million in AOL Time Warner stock and options, already owns two private companies in Hawaii -- Grove Farm and Lihue Plantation, both former sugar plantations. He believes Hawaii's sugar and pineapple businesses, badly battered by global competition, need retooling. "The focus will be on developing profitable agricultural uses -- emphasizing fresh pineapple over canned, developing organic products," Case said in an e-mail to BusinessWeek. In August, Maui Land hired former AOL exec David Cole as CEO. Cole says Maui Land also plans to integrate resort development with agriculture. Maybe that will prove easier than the media synergy Case tried back East. By Catherine Yang A Sudden Downpour of Guv Love It's the politics of fear. California Governor Gray Davis, facing an Oct. 7 recall, is signing bills at a furious pace. Coincidentally, many benefit the voting blocs he desperately needs to stay in office. On Sept. 5, Davis allowed illegal aliens to register for driver's licenses, which immigrant groups had long sought. Last year, he vetoed a similar bill. His rationale: Aliens who would drive anyway will at least have to show they know the rules of the road. Davis had battled consumer groups over legislation preventing the sale of personal data by financial institutions. Then, on Aug. 27, he signed the nation's broadest privacy bill. And though he once vetoed it, Davis now favors legislation preserving land sacred to some Indian tribes. "Politics is about compromise and negotiation," says Davis spokesman Russell Lopez. Will all this Guv love help? Polls show that 58% of voters favor the recall. Indian groups pledged $3 million to Lt. Governor Cruz Bustamante, snubbing Davis. Even some supporters see self-preservation in the flip-flops. "Nothing like a recall to focus your attention," says Democratic consultant Darry Sragow. How many votes Davis gets may well depend on how many bills are left to sign. By Christopher Palmeri Doctors Jump into the Insurance Pool Some doctors believe they have an antidote to the spiraling costs of malpractice insurance -- self-insurance pools. Doctors say these efforts, known jokingly as "bedpan mutuals," can charge lower rates because of their nonprofit status, unwillingness to settle frivolous claims, and refusal to insure riskier doctors. "It's the perfect marriage of medicine and insurance," says Steven Salman, CEO of Healthcare Underwriters Group of Florida, a doctor group hoping to launch by November. According to The Risk Retention Reporter, an industry trade publication, 11 doctor groups have either filed to form or have formed their own insurance pools in the past 20 months. That's as many as in the previous 15 years. Still, some insurance execs question whether doctors are setting themselves up for even larger losses down the road from jury awards that are bigger than their capital reserves. "If other insurance companies are already losing money, how do they think they can charge less and survive?" asks Donald Zuk, CEO of SCPIE Holdings, a California malpractice insurer. By then, it could be too late for a second opinion. By Dean Foust A Potty with Power Coming soon: a new product that's all about speed and power. No, it's not a car or a computer. It's a toilet. The 1.6-gallon toilet has been an object of derision since the mid-1990s, when new toilets were limited to only that much water per flush, down from 3.5 gallons. "The early models didn't work very well," says John Koeller, a water-utility consultant. While low-flow toilets have improved, some consumers are still dissatisfied. American Standard (ASD ) says its new Champion took two years to develop and flushes fully and reliably. "Is this like going to the moon?" says CEO Fred Poses. "No. But it's a big improvement." The toilet will cost roughly $300, about $100 more than the company's other models. Its big innovation? A water flow that gets rid of turns and points of friction that can slow down water leaving the bowl. Now, water rushes out in less than a second, creating a gush strong enough to eject 29 golf balls at once. The toilet also has been tested on water-filled SpongeBob toys and cloth napkins -- but not on goldfish. By Amy Barrett The Baggage at Travelweb Is Travelweb in trouble? The most recent sign of problems at the hotel-reservation Web site surfaced in the Aug. 28 IPO filing by Orbitz.com, which sells rooms for the year-old company. Travelweb is majority-owned by Hilton (HLT ) Marriott (MAR ), Hyatt, InterContinental, and Starwood (HOT ) The Orbitz IPO filing says Travelweb has failed to live up to an agreement to supply the lowest rates available online for hotels run by Travelweb's owners. Orbitz "isn't happy, that's for sure," says analyst Lorraine Sileo of market researcher PhoCusWright. The Orbitz flap is just the latest sign that Travelweb is struggling. The online upstart drew 1.7 million visitors in July, just 11% of rival Expedia (EXPE )'s total, says Nielsen/NetRatings. And it has been without a CEO since April. Jaynne Allison, Travelweb's general counsel, says Orbitz' deal doesn't require the lowest prices all the time. She says the charge "can't possibly be true." Orbitz declined to comment. Travelweb's board has approved a new marketing campaign to boost business, and it has a short list of CEO prospects. With Web rivals squeezing hotel profits, there's little time to dawdle. By Timothy Mullaney 
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