Before the Bust, These CEOs Took Money Off the Table

[question everything]

NOVEMBER 20, 2008

Before the Bust, These CEOs Took Money Off the Table
By MARK MAREMONT, JOHN HECHINGER and MAURICE TAMMAN
WSJ

The credit bubble has burst. The economy is tanking. Investors in the U.S. stock market have lost more than $9 trillion since its peak a year ago. But in industries at the center of the crisis, plenty of top officials managed to emerge with substantial fortunes. Fifteen corporate chieftains of large home-building and financial-services firms each reaped more than $100 million in cash compensation and proceeds from stock sales during the past five years, according to a Wall Street Journal analysis. Four of those executives, including the heads of Lehman Brothers Holdings Inc. and Bear Stearns Cos., ran companies that have filed for bankruptcy protection or seen their share prices fall more than 90% from their peak.

The study, which examined filings at 120 public companies in such sectors as banking, mortgage finance, student lending, stock brokerage and home building, showed that top executives and directors of the firms cashed out a total of more than $21 billion during the period... Some experts say huge paydays inevitably coincide with economic booms. In the tech bubble of the late 1990s, more than 50 individuals each made more than $100 million from selling shares just prior to the crash. Many had just founded companies that had never turned a profit.

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In its study, the Journal analyzed the compensation and stock sales of insiders at financial and housing-related companies over a five year period. The study used compensation data from Standard & Poor's ExecuComp and stock-trading information from InsiderScore.com... Six of those who made more than $100 million headed home builders, the Journal analysis found. One is Robert Toll, CEO of Toll Brothers Inc., a Horsham, Pa., firm known for building deluxe suburban homes. Mr. Toll and brother Bruce Toll, a company director, together garnered $773 million in compensation and stock proceeds over the five-year period... The list includes some familiar names, such as Angelo Mozilo, who realized $471 million during the five-year period as he piloted Countrywide Financial Corp. into a leading subprime lender. Amid huge losses, Countrywide was sold earlier this year to Bank of America Corp. Mr. Mozilo defended his pay before Congress earlier this year, saying his compensation was tied to performance and he had built up equity over decades as a founder.

Some who made large sums before the recent crisis don't appear on the list because their wealth isn't detailed in securities filings. These include hedge fund chiefs, Wall Street traders, and executives who sold their companies outright.

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Wall Street once had a voracious appetite for student-loan debt. Ten insiders at First Marblehead Corp. seized the opening, receiving a total of about $660 million, mostly through stock sales over five years. Based in Boston, First Marblehead specializes in "private student loans." Students take out the loans if they've exhausted the cheaper government-backed variety. As with subprime mortgages, those with poor credit histories must pay higher interest rates. First Marblehead helped big banks, such as Bank of America and J.P. Morgan Chase & Co., put together student-loan programs. First Marblehead earned rich fees assembling and servicing packages of the debt sold to investors. Chief Executive Daniel Meyers, a 46-year-old former arbitrage and derivatives trader, received almost $96 million in cash compensation and proceeds from stock sales over five years. Lee Jacobson, a First Marblehead spokesman, notes that Mr. Meyers co-founded the company in 1991 and didn't sell any shares until First Marblehead's October 2003 initial public offering.

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Robert K. Cole, Edward Gotschall and Brad Morrice, three mortgage industry veterans, founded New Century Financial Corp. in 1995. By the peak of the boom, it was the nation's second-largest subprime lender. The Irvine, Calif.-based company promoted mortgages that customers could apply for by merely stating their income with no documentation. Over four years, the three executives received cash compensation and stock proceeds totaling $74 million, including estimates of their 2006 pay cited in a report by a court-appointed investigator after the company filed for bankruptcy protection. Mr. Cole, who was CEO for some of the period, lives in a 9,200-square-foot oceanfront home in Laguna Beach, Calif., that has a tax value of $30 million. In 2007, New Century filed for bankruptcy protection. New Century has said its accounting is under investigation by the Securities and Exchange Commission and the Justice Department.

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http://online.wsj.com/article/SB122713829045342487.html (subscription)