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NYC 9/11 Public Portal Document Document http://proquest.umi.com/pqdweb?TS==1&Did=000000017883274&Mtd=|&Fmt=3 In the letter, after the usual boilerplate Cantor clearly warned: "... while holding your unexecuted order, we may trade for our own account at prices that are equal to, or better than, your level/limit."Isn't that a frank admission that it reserved the right to front-run customers? Front-running is of course illegal in stocks: In Treasury bonds it's a gray area. Has Cantor Fitzgerald cleaned up its act, as Richard Breeden's findings would suggest? In a June 24, 1997 letter to FORBES, Cantor said that its policies and procedures forbid brokers in its goverment securities brokerage to take positions. Yet on June 6 of this year, according to sources, Timothy Coughlin, a star Cantor broker of ten-year notes, took a large position on which C'antor wound up losing an estimated $1.5 million. We could go on and on with examples of transgressions and alleged transgressions we have uncovered in more than a year of research on Cantor Fitzgerald Since Lutnick took over Cantor's daily management in 1991, its revenues have tripled, to nearly $600 million last year, due in part to all the new businesses he's gone into. Keep this in mind, however: The growth was financed from profits from government bond brokerage, the equities business and income received from the sale of pricing data (a revenue flow the firm shares with an outfit now controlled by Iris Cantor). Many of those new businesses lose money or don't make much. European operations, led by the huge London office, gush red ink. [Photograph] Caption: Howard Lutnick Hobnobbing with fellow masters of the universe. In short, Lutnick has yet to prove that he can turn Bernie Cantor's specialized money machine into a profitable full-service Wall Street house. Skating on thin equity Net profits rose during Lutnick's first years in charge, but from 1994 to 1996 they dropped from around $80 million to under $60 million. This year so far has seen another drop in profits, in part because of Lutnick's breakneck expansion. Howard Lutnick's ambitions are huge but thinly capitalized. As of Mar. 27, 1997, there were $7.9 billion of assets but only $185 million of partners' capital. The equity base looks even thinner when you realize that much of it is borrowed money. Last year the partnership retired a big chunk of Iris Cantor's partnership units and then it reoffered units to Lutnick and other partners; Lutnick's share is now 25%. Financing for the deal was provided by a Chase Manhattan-led syndicate. Thus Lutnick's partnership units-as well as those belonging to many other partners-are pledged as security for the loan. Just as we were preparing te go to press, after months of reporting on the story, we received a press release from Cantor Fitzgerald. It announced the firm was, among other changes, shutting its fixedincome trading unit, Global Trading Strategies, Howard Lutnick's old stamping ground and more récently Gary Lutnick's. The announcement said the firm would concentrate on executing trades for customers. We note the irony without comment. Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission. 8 of8 NYC-WTC_000136334 9/18/01 1:16 PM