As the sole possessor of rights to salvage the Titanic's treasures, OTC-traded RMS Titanic Inc. had hoped to make its fortunes by exploiting those of the legendary wreck. Today, though, the company's executives, including CFO Gerald Couture, are wishing they hadn't gone public so fast.
"Everyone has an opinion about the Titanic," says Couture. "The public environment is not necessarily the best environment for us, because of all the disclosure required."
And disclosure is the last thing Couture and his business associates want. The company, which now gets most of its revenues from exhibiting the 6,000 objects recovered from the wreck, hasn't launched an expedition since July 2000. At the rate it's going, that voyage may have been its last, largely due to backlash sparked by the publicly revealed conflicts of interest, legal woes, and outsized executive salaries.
As its revenues plunged from $6.4 million in 2000 to $2.8 million in 2002, the company tried to appeal a court order that blocked it from selling artifacts. The appeals court upheld the ban, in part because one of the proposed artifact buyers was a nonprofit foundation headed by RMS Titanic's principals. The appeals court affirmed the lower court's ruling that the "one-man show" might "create irreconcilable conflicts of interest" between the company and the foundation.
The company has already spent $2 million on legal battles with unhappy exhibitors, would-be competitors, and former managers ó about what it would cost for another expedition. Meanwhile, four nations, including the United States, want to make the wreck a maritime memorial, thus impeding future explorations.
Another potential iceberg is the shareholder lawsuit alleging that executives and others have wasted assets through mismanagement and greed. (Couture's base salary was more than doubled in February 2002 as the company's losses swelled.) "It's hard to run out of metaphors for this situation, because it's like they're sinking the Titanic a second time," says Storch Amini & Munves's Steven G. Storch, the attorney for one of the shareholders. óAlix Nyberg
Willey or Won't He
At worst, it's the most blatant insider-trading violation in recent memory; at best, it's one of the dumbest stock sales ever. David Willey, informed by the Securities and Exchange Commission that he may face insider-trading charges, resigned in March as CFO of credit-card issuer Capital One Financial Corp. Although the SEC is offering few details, the charges seem to stem from Willey's $3.1 million gain on the sale of stock options in May 2002, allegedly after learning that the Federal Reserve Board and the Office of Thrift Supervision were reviewing the company's lending policies. Two months later, Capital One announced publicly that the Fed had ordered it to change its lending practices and increase debt reserves. Its stock promptly plunged below Willey's option strike price in the 30s, where it has stayed.
Maybe Willey didn't know about the probe when he sold, but it's doubtful the SEC would threaten charges if the timeline were in question. As a finance professional, Willey knew he had to reveal his stock sale; he either didn't consider the probe material nonpublic information, or he did and sold his stock anyway. (Which scenario shows worse judgment?) While his alleged actions beg the question, "What was he thinking?" brazen acts aren't exactly rare of late.
"It's called pride, the first and the worst of the seven deadly sins," says W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College. "People who have this excess pride really do think they're invulnerable to the laws of God and man. They think they have such amazing abilities that they can talk their way out of something, hide it, or find a way of making it all OK." It will be interesting to see if Willey can make it OK. óKris Frieswick
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