The Most Dangerous Trade

Chapter 8Tice: Truth Squad Leader

Congress was in for some fireworks. It was June 2001 and the House Subcommittee on Capital Markets was investigating the ties of Wall Street analysts to their investment banker colleagues. “We are going to inquire into disturbing media and academic reports about pervasive conflicts of interest,” Chairman Richard Baker told the half-empty chamber, filled mostly with sundry aides and lower level staffers milling about. But if the Louisiana Republican thought the proceedings were going to be dry, he didn't know much about the first witness—David Tice, founder of his eponymous investment firm.

Tice lived and breathed research; a numbers geek, he had devoted the better part of his career to picking apart financial statements, using what he found as the cornerstone for not one but two thriving businesses—an accounting-focused market research service and a short-selling mutual fund. Tice let loose.

“This is an outrage,” he proclaimed. “Wall Street's research is riddled with structural conflicts of interest.”

Tice said bogus analyst recommendations were just the tip of the iceberg. The entire financial system had become irredeemably tainted. “This problem is much larger,” he said. “A sound and fair marketplace is at the very foundation of capitalism.”

The corruption of hundreds of stock analysts contributed to the channeling of vast sums of money into risky and money-losing ventures. “When the marketplace's reward system so favors the aggressive financier ...