People on Wall Street treat legal and ethical issues with remarkable delicacy.

For instance: while Bernard Ebbers's Worldcom was on the manic corporate buying spree that ultimately wound up in bankruptcy, investment banks competed mightily for Worldcom's lucrative business. At about the same time, for some strange reason, Salomon Smith Barney let Ebbers buy large numbers of shares in its hottest initial public offerings at the opening price, which Ebbers could instantly sell (in the then-guaranteed post-IPO runup) for millions of dollars in profit. Also on the gift list were six other Worldcom directors and officers, including now-disgraced CFO Scott Sullivan, the man who taught the world why you should not treat ongoing maintenance as a capital expense.

To some of us, these favors might look like bribes. But we're not treating the matter with sufficient delicacy. Professionals take a more nuanced approach --- say, Lewis Lowenfels, a securities law expert at the New York law firm of Tolins and Lowenfels:

There's nothing wrong with favoring your best customers. But when you see a pattern of this coupled with the magnitude of it at the same time that the individual's company is paying substantial investment banking fees to the underwriter, it has to raise questions of whether there was a quid pro quo. If there was, then federal securities laws may well have been violated.

Strangely, the violation involves just a "failure to disclose to investors that significant numbers of shares were being allocated to executives of large clients" --- which was true whether there was a "quid pro quo" or not. But nevertheless, let's just take it on Lowenfels' authority that the violation depends on whether there was a quid pro quo.

Now, what does this mean? Lowenfels knows about the IPO shares. He also knows that Worldcom was doing a lot of mergers and acquisitions, and that Salomon had a busy M&A practice which was heavily involved in the telecom industry. Yet he still thinks there are only "questions" about whether there was a quid pro quo. But what's left to question? Only whether there is specific evidence tying some particular quid to some particular quo.

So if Salomon was giving Ebbers hot IPO shares under the table in return for getting cut in on some particular deal, that would be wrong. But if Salomon was giving Ebbers the shares in the general expectation that it would help them get cut in on the next few of Worldcom's endless stream of acquisitions, well, that's just fine --- "there's nothing wrong with favoring your best customers".

Or, to put it another way: an illegal quid pro quo is only illegal if somebody is stupid enough to write down the particulars. Otherwise, there's nothing at all wrong with it.

Which is an object lesson in the distinction between legal ethics and the other kind...

Update: In Slate, Daniel Gross has another explanation of the issue that Lowenfels may have been getting at --- it's not wrong to send kickbacks to customers that drum up a lot of business, so goes the argument, so long as the right party gets the kickback:

If it's ethical for big-spending clients to receive outsized chunks of IPOs, then it is WorldCom—not Ebbers—that should have received all those shares and then flipped them for a quick profit.

But that's again a distinction without much difference. As Gross notes in the preceding sentence, Ebbers "regarded the company as his personal piggy bank."