St. Louis Post-Dispatch from St. Louis, Missouri on April 1, 2005 · Page B001
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St. Louis Post-Dispatch from St. Louis, Missouri · Page B001

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St. Louis, Missouri
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Friday, April 1, 2005
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Page B001
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C K Y M PAGE B01MD1FN0401 Condit Deposed in Druyun scandal SECTION B F RIDAY A PRIL 1 2005 B USINESS F RIDAY B USINESS F RIDAY Carnahan’s move spotlights murky corner of investing I t’s not quite Eliot Spitzer versus the mutual fund industry, but Missouri Secretary of State Robin Carnahan has landed a big blow in the fight to protect investors. This week, she yanked the Missouri securities licenses of Waddell & Reed before a St. Louis County judge reinstated them. The court issued a temporary restraining order, saying Waddell & Reed was deprived of due-process rights. The state accuses the firm of earning $1 million by improperly switching variable annuity contracts of more than 250 Missouri investors. Carnahan’s spokeswoman, Stacie Temple, defended the suspension. “That action was unprecedented, but Waddell & Reed’s alleged misconduct was also unprecedented.” Joel Seligman, dean of the Washington University Law School, says an immediate license suspension is a penalty usually reserved for cases where there’s a potential for imminent harm. He also says that variable- annuity sales practices are an increasing concern of regulators. “Clearly this is an unusual action,” he said. “At the same time, that doesn’t mean it’s wrong.” Variable annuities are a fee- laden, and increasingly controversial, financial product that is part insurance policy, part mutual fund. They were involved in 66 disciplinary cases brought last year by NASD, the securities industry’s self-regulatory body, including a complaint against Waddell & Reed. NASD charged the firm with improperly advising 6,700 clients, including the 250 Missouri investors, to switch their variable annuities from one insurance company to another. The switches happened in 2001 and 2002, allegedly because Waddell & Reed had a revenue-sharing agreement with one company but not the other. The NASD says the firm made $37 million in commissions while customers paid nearly $10 million in surrender fees. Also, customers who faced no surrender charge on their old annuities would be subject to such a fee on the new ones. Waddell & Reed is contesting the NASD charges, and spokesman Roger Hoadley says the firm can show that the transactions were in clients’ best interests. “We generally viewed these (new annuities) as better products that may have offered more options and better ben- efits to customers.” Bruce Oakes, a Brentwood attorney who represents investors in cases against securities firms, says abusive sales practices are common in the variable-annuity market. “They’re not bought by customers, they’re sold to them because the commission rates are so high.” Tax deferral is one of the main benefits of a variable annuity, but they’re often sold inside Individual Retirement Accounts, which already are tax-deferred. They’re also sold to elderly investors who don’t need the tax benefit. Oakes says one of his clients had no other income and needed a stable retirement investment but was sold a variable annuity that invested in aggressive-growth stocks. NASD and the Securities and Exchange Commission have issued advisories about variable- annuity sales practices, but Stuart Berkowitz, a St. Louis attorney who also specializes in securities cases, doesn’t think they go far enough. “Variable annuities should be outlawed. There is no valid justification for this product at all.” Insurance agents and brokers sell more than $100 billion worth of variable annuities a year, so a ban is unlikely. But Carnahan has done investors a favor by shining a much-needed spotlight on this murky corner of the fi- nancial markets. E-mail: dnicklaus@post-dispatch.com Phone: 314-340-8213 COMING SUNDAY WHAT’S UP TODAY Unemployment The government reports the unemployment rate for March. THURSDAY’S MARKETS REPORT ON B13 Dow Jones industrials –37.17 10,503.76 Bloomberg St. Louis +1.52 477.87 Standard & Poor’s 500 –0.82 1,180.59 Nasdaq composite –6.44 1,999.23 CDRATES B3 REAL ESTATE B4 THE WATER COOLER B5 TECHNOLOGY B6-7 NETWORKING B8-9 SMALL BUSINESS B10 IF YOU BUILD IT IN THE CITY . . . Suburban contractor Mark Morley discovers the opportunities of building in St. Louis. B4 MORE THAN A GAME The new Playstation portable unit plays movies and slide shows among other features. B6 IF LIFE HANDS YOU LEMONS . . . Patrick Steptoe’s Lemonade Ice Cream makes it to Busch Stadium. B10 5 MINUTES WITH PATRICK MCKEEHAN The man who helped keep the Ford plant open backs new development law. B5 Schick’s new schtick B Y M ARY J O F ELDSTEIN Of the Post-Dispatch Whether they were taught tub-side by Mom or studied step-by-step instructions in Cosmopolitan, most women think they know how to shave. Think again, Schick says. Its Quattro for Women razor hits stores today across the nation. Schick, whose parent is Energizer Holdings Corp. of Town and Country, says women’s razors have been considered inferior to men’s. It wants to change that notion with the first “high- performance razor for women” and a Web site explaining how to use the razor’s new technology. The four-bladed razor has a pivoting head and metal handle. It has qualities that women have favored in men’s razors, as well as features specifically designed for women’s shaving needs. Product designers added comfortable rests to the metal handle as well as gripping points and stylized rubber to prevent slipping in the shower. Also, they slightly reduced the SCHICK QUATTRO FOR WOMEN THE HANDLE: It’s designed with multiple finger points for the six most popular grips. The handle is made of 39 grams of zinc alloy, which Schick says gives the shaver more control. CONDITIONING STRIPS: The bottom rubber guard prepares the skin for shaving. The top strip has aloe and vitamin E. FOUR BLADES: Each blade is positioned relative to the others to give what Schick says is the closest shave possible without nicks. PIVOTING HEAD: The head can pivot up to 40 degrees to glide over the body’s contours. TARGET: Active girl next door INSTORES: Today AVERAGE RETAIL PRICE: $8.99 for the razor, two refills and a shower hanger. A four-count refill costs $9.49, eight-count refills are 16.99. WEB SITE: www.holdonladies.com See Razor, B16 Ousted Boeing CEO gets richer 383 will lose jobs Nestlé USA said Thursday that it will shutter three St. Louis-area candy plants that employ 383 workers. The plants will close by the middle of next year. B2 Gundaker offers site for Express Scripts HQ B Y E RIC H EISLER Of the Post-Dispatch A St. Louis-area developer wants to lure Express Scripts Inc. and at least 1,200 jobs to the vacant Dillard’s building downtown. With the plan, Gundaker Commercial Group enters the high-pro- file bidding war to land the corporate headquarters of Express Scripts, a fast-growing, Fortune 500 company that now has its headquarters in Maryland Heights. Gundaker previously had proposed redeveloping the Dillard’s building as a boutique hotel, condos and retail. It now wants to invest $88 million to convert the Washington Avenue building for Express Scripts. To win the bid, Gundaker must beat out a list of prominent sites, including a new business park near Lambert Field, whose developers also are wooing Express Scripts. But Gundaker hopes to drum up support with the idea that Express Scripts would fill a void left when the May Department Stores Co. headquarters leaves downtown, possibly taking thousands of jobs with it. Federated Department Stores Inc. of Cincinnati is buying May. Plans change for old Dillard’s READY FOR PARTIES AS WELL AS SHOWS KEVIN MANNING / POST-DISPATCH A stagehand carries a dining table across the stage at the Roberts Orpheum Theater, once occupied by the likes of Ethel Merman and Julie Andrews and soon to be featuring the Backstreet Boys. Roberts Orpheum finds its niche B Y T AVIA E VANS Of the Post-Dispatch The sign still reads American Theatre, but the blinking marquee on the Roberts Orpheum Theater indicates that downtown’s newest venue is open for business. The Roberts Orpheum will make its official debut April 10, with popular 1990s band the Backstreet Boys. But it will see plenty of action this weekend, too. Two private parties will work in tandem with the NCAA men’s basketball championships. Sporting-goods maker Adidas will sponsor a party there tonight, and former Blues hockey player Tony Twist will take over the space Saturday. The private events will become part of the theater’s permanent operating strategy to turn a profit. In fact, 75 percent of the events won’t be open to the public: Weddings, corporate events and private parties already have B Y T IM M C L AUGHLIN Of the Post-Dispatch ©2005, St. Louis Post-Dispatch Boeing Co.’s pay-for-performance program for top executives also can pay handsomely for doing nothing. Consider the case of former Chairman and Chief Executive Philip M. Condit, who’s poised to receive a final installment of Boeing stock, bringing the total value of a 2003 incentive to $19 million. Critics say Condit has done little to earn it. That’s because the shares accumulating in his account have vested based on stock appreciation that happened after he was chased from the executive suite. Condit resigned Dec. 1, 2003, amid an ethics crisis that continues to haunt Boeing and the rest of the defense industry. “It looks like Condit was able to game the system,” said Ken Boehm, chairman of the National Legal and Policy Center, a watchdog group that has been critical of Boeing’s ethics. “The core purpose is to reward good executive performance, but it’s set up in a way that you can have a disaster and executives can still benefit from it” after they leave the company. The value of Condit’s stock award could climb another $7.7 million if Philip Condit stands to gain millions as stock price soars The Roberts Orpheum Theater Address: 416 North Ninth Street Opened: 1917 Original owner: Louis Cella Purchased by: Mike and Steve Roberts in 2004 for $1.5 million Features: Seats 1,470, three bars, 30-foot-deep stage, renovated halls and bathrooms, remodeled party room beneath stage See Express, B15 See Boeing, B15 See Theater, B15 The Quarterly Investors Guide Along came a spider . . . Exchange traded funds go by scary names — spiders, vipers — but they’re really little more than garden-variety mutual funds. With a twist.

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