Scandal Gives Wall Street Made-to-Order Scapegoat.

LAST week brought the news of Anthony Bruan, the head of an investment firm I'd never heard of called PTJP Partners LP. PTJP now finds itself at the center of a potentially huge scandal. According to at least five former employees, traders at the firm in effect bribed virtually every big Wall Street firm for shares in Internet companies at the initial offering price.

The payoffs took the form of higher-than-usual commission rates on other trades, or agreements to buy shares in the less appealing companies peddled by Wall Street firms. By one estimate Bruan -- who goes by "Tony," enjoys expensive cars, likes showing off his ability to do push-ups, and is friendly with the actor who plays Mafia henchman "Paulie Walnuts" on "The Sopranos" -- ran a business where some traders kicked back to Wall Street as much as half of what they made from the Internet IPOs.

The apparent moral of the story is that it is wrong to bribe your way into Internet IPOs. The actual moral of the story is that, during a financial bust, it is unwise to be a) obviously rolling in profits from the preceding boom, b) unendowed with higher education and c) unsheltered from public ridicule by one of the snootier Wall Street firms.

Two years ago, the whole society was caught up in a very obvious racket called Internet IPOs. Everyone who played the game knew exactly how it worked. Now the exact same people are busy convincing themselves they are disgusted with what happened.

Filling a need

Two years ago, no one was innocent. Now everyone is, except for a handful of soon-to-be Wall Street outcasts. And so, at this moment, there is a pressing social need to find people like Tony Bruan to string up. If Tony Bruan didn't exist, a firm like Goldman Sachs Group Inc. would have to invent him.

But the interesting question is not: Did Tony Bruan bribe Morgan Stanley & Co., Goldman Sachs, Lehman Brothers, et al? The interesting question is: Why did Morgan Stanley, Goldman Sachs, et al, price Internet deals so cheaply that investors like Bruan would be compelled to bribe their way into them?

Why would a sane, honest investment bank sell shares in a company for $8 that everyone knew would rise to $30 at the end of the first day of trading? After all, the new Internet company would only benefit from the cheaper capital.

Of course you already know the answer to that one. Internet IPOs were underpriced because the Internet companies agreed to allow their shares to be underpriced.

They did this in turn because a) the officers of the company could make more money on stock options struck at the discounted IPO price than at the fair market price, b) underpricing your shares was the price of entry into the lucrative game and c)people believed, or wanted to believe, that the publicity of the stock shooting through the roof on the first day of trading was worth more than the cost of selling the shares cheaply.

The added cost of capital might have been a concern to a long-term investor. But there were no long-term investors, so the cost of capital was irrelevant.

Everyone knew that -- just as everyone also knew that the success of Internet IPOs depended on an elaborate system of bribes and kickbacks. The analysts were bribed to endorse the companies -- a bribe they took in the relatively genteel form of enormous year-end bonuses.

Others who might help generate favorable public opinion around the company -- venture capitalists, prominent entrepreneurs, at least one business journalist -- were included on the "friends and family list," which enabled them, like Tony Bruan, to buy shares at the offering price. The investment banks, dissatisfied with their fees, and unhappy to see big investors making off with the lion's share of the gains, demanded tribute from investors in exchange for shares at the offering.

A challenge

So if I were Tony Bruan, I would take my Bentley down to Wall Street and hold a press conference beneath the statue of George Washington.

Straddling my hood ornament and flanked by Paulie Walnuts, I would issue a challenge to the many U.S. government employees who are now hunting for financial scalps.

I'd say: Take any Internet deal after mid-1998. Go ahead: Name the cleanest deal you can think of. Assign a team of young, hungry federal investigators to examine the list of friends and family members let into the deal, plus the allocation of shares at the IPO price to big institutions.

Let them examine the pattern of institutional trading in the after-market, the analysts' recommendations and the investment banking fees they attracted. If they find even one deal that was clean, I'll tell you everything you want to know and more.

But you know what? You'll never do it. You don't have the guts for it. Because, deep down, you know what you'd find: No one is clean. Every one of these deals was born dirty. Nice guys didn't get a piece of them. You got a piece of these deals because in some way you paid off the people who brought them to market.

Michael Lewis is the author of "Liar's Poker" and "The New New Thing." His new book, "Next," has just been published.