Sun, Sep 24, 2006 - Page 17 News List

Hey, big spender

By Timothy L. O'brien  /  NY TIMES SERVICE , NEW YORK

“I’ve never borrowed a significant amount of money in my life. Never,” he added. “Never will. I’ve got no interest in it. The other reason is I never thought I would be way happier when I had 2X instead of X.”

Yet even the most well-to-do sometimes still rely on debt. Over the years, Lawrence Ellison, founder and chief executive of Oracle, has preferred to hold onto, rather than sell, his shares in the database provider, giving him a stake currently valued about US$17.6 billion.

Oracle shares represent almost the entirety of Ellison’s fortune, and to finance one of the country’s splashiest spending sprees (138m megayacht, mansions, expensive hobbies and more) he has occasionally taken on sizable bank loans rather than sell his shares — all on the presumption that the value of his shares will remain lofty enough to allow him to pay back the loans.

A raft of e-mail messages and financial documents introduced in a lawsuit that disgruntled shareholders filed against Ellison and other Oracle executives in 2001, give witness to some of Ellison’s budgeting practices. (The suit was settled last November, and the judge in the matter subsequently unsealed financial documents submitted as exhibits in the case).

The documents also show how far Philip Simon, an adviser who described himself as Ellison’s “financial servant,” went in trying to persuade his boss to pay off about US$1.2 billion in loans. (Neither Ellison nor Simon responded to interview requests for this article).

SPENDING LIST

Ellison’s ledger around the end of 2000 included annual “lifestyle” spending of about US$20 million, the purchase of a Japanese villa for US$25 million, a proposed underwater archeology project earmarked for US$12 million and his new yacht, budgeted at US$194 million (news reports later said that the yacht’s final cost approached US$300 million).

“I know you view me as a pessimist,” Simon wrote Ellison in an e-mail message in 2002, several months after banks began sounding alarms about Ellison’s debt. “Maybe you’re right, though I would disagree. Nonetheless, I think it’s imperative that we start to budget and plan. New purchases should be kept to a minimum. We need to establish and execute on a diversification plan to eliminate (yes, eliminate) all debt.

“I know you don’t like to discuss this,” Simon added. “I know this e-mail may/will depress you. View this as a call to arms.”

Ellison paid down part of his debt by 2002, according to court filings, and his Oracle holdings are vast enough that it was unlikely that his financial well-being was ever in peril. But for lesser financial potentates, the psychological twists behind overspending and bad investing can be more debilitating.

“The rich are different from you and me: they are more egotistical,” says Theodore Aronson, managing principal of Aronson Johnson Ortiz, an investment firm in Philadelphia. “Psychologically, I think the rich, because of their egos, think they know everything. Well, they don’t, and many of them repeatedly make horrible investments — because they can.”

Financial success can breed its own peculiar set of vulnerabilities. “People who are very successful develop elevated sensibilities about their skills, and when things turn on them they won’t admit they’re wrong because their self-confidence has held them up so long,” says Arnold Wood, chief executive of Martingale Asset Management in Boston. “In the face of evidence, even subjective evidence, that suggests that something bad is about to happen to someone, a funny thing happens: They reject the evidence.

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