Wall Street West—Kayne Anderson Said To Be On the Market, Close to Sale

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Kayne Anderson Rudnick Investment Management LLC, the mutual fund and money management shop co-founded by local business titan John Anderson in 1984, is rumored to be up for sale.

The Century City-based finance house has had several great years on Wall Street, though the last one hasn’t been as sweet. Assets have swelled to $7 billion at latest count (end of third quarter), up from less than $100 million at the start of the 1990s and $1.64 billion in 1995.

The most interested suitor is said to be Phoenix Investment Partners Ltd., a unit of Phoenix Cos. Inc., a large insurer based in Hartford, Conn.

Ralph Walter, Kayne Anderson’s chief operating officer, chose not to use the words “for sale,” in describing his firm’s prospects.

“I would say that Kayne Andersen is not up for sale, but that we have had, and will continue to have discussions (with potential buyers) and that we have retained Putnam Lovell.”

Putnam Lovell, part of Putnam Lovell Securities Inc., is a Rolling Hills Estates-based investment bank and advisory firm that specializes in mutual fund company mergers and acquisitions. Additionally, Walter confirmed that Kayne Anderson has had continuing discussions with Phoenix Investment Partners Ltd.

In addition to the mutual fund business, there is Kayne Anderson Capital Advisors LLC, a hedge and arbitrage shop, which operates under the same roof. Walter said that while the two outfits share space, they are separate businesses, and the “non-traditional” hedge shop probably would not be part of any possible sale.


Rare Result

It is rare for a securities class-action suit to actually go to trial, and rarer yet for plaintiffs to win back more than pennies on the dollar. But David Lefkowitz, partner in the Santa Monica-based law firm Wilshire Palisades Group, successfully concluded a case in late October against Olde Discount Corp. brokerage, which paid investors 115 percent of losses, or $21 million.

“I only took this case five years ago because I was young and immoderate,” Lefkowitz said last week. “I spent $215,000 of my own money on the case, and, of course, a major portion of five years professionally. It wasn’t a wise investment, but I guess it worked out.”

It helped that the Feds were knocking on the same door.

Lefkowitz, representing a class of roughly 2,000 investors, alleged in an Arizona state court that Olde Discount pushed clients into about 200 specially selected stocks in which the brokerage had taken a position. He said the brokerage told investors they could buy brokerage-recommended small capitalization stocks “commission free.”

In fact, he alleged, it made money either on the spread the difference between bid and asked prices, sometimes substantial on thinly traded Nasdaq stocks or by simply being a market maker (owning a large chunk of the stock), and driving the price up by recommending the stock to clients

Lefkowitz’s case, initially brought in 1996, received boosts along the way, when both the SEC and NASD investigated Olde Discount and brought administrative proceedings against the firm. In 1998, the NASD fined Olde Discount $1.5 million and founder Ernst Olde $500,000 personally for the same sales practices that Lefkowitz cited in his class action case. The SEC also fined Olde Discount $4 million the same year citing the same issues.

Olde was purchased in 1999 by H & R; Block Inc., the Kansas City-based financial and tax preparation service. In a statement last week, the Big Board-listed H & R; Block said it settled the case to avoid expensive litigation, that it continues to deny liability, and noted that Olde Discount management has been changed since the acquisition.


IPO Yet?

There are occasional murmurs that the IPO market is coming back, but investors in California companies will need cast-iron stomachs before plunging in, if recent experience is any guide.

West Los Angeles-based IPO Monitor.com produces updates of the IPO scene, and for California issues over the last 18 months, the picture is brutal.

From May 2000 through October of this year, 103 companies based in California went public, but at the end of last month only 18 were trading at or above their offering price.

Of the eight California IPOs in November 2000, all are down anywhere from 17 percent to 95 percent. Take out the one that is down “only” 17 percent Rigel Pharmaceuticals Inc. and the seven remaining offerings are each down 60 percent or more as of the end of October.

If there is good news, it is that more recent IPOs seem to be faring better. A full nine of the 12 IPOs done in-state since March are trading above their initial offering prices. Of course, the cynical will note the more-recent issues are probably still supported, or “sponsored” by their underwriting brokerages, or close institutional investors, and so yet have to face the market on their own legs.

Still, well-known companies can go public in this market, said Jeffrey R. Hirschkorn, senior analyst at IPO Monitor, who noted that the week of Nov. 12 had the highest number of IPOs eight slated in nearly a year. “If you have a brand name that investors recognize, then you can do an IPO,” he said.


Combat Zone

The downcycle on Wall Street means more litigation from angry investors alleging management and boards have covered up bad news, or were self-dealing. That makes sitting on a board these days a risky pursuit, according to Marshall Grossman, a partner at Century City law firm Alschuler Grossman Pines Stein & Kahan LLP.

“We are counseling clients that it is not a good time to sit on a board even blue-chip situations can change, when you consider an Eastman Kodak, a Polaroid, a Xerox or an Enron,” said Grossman, citing four major U.S. corporations recently having troubles on Wall Street.

While insurance usually covers settlements, board members can find themselves dragged into time-consuming depositions, or even testifying as witnesses in trials. “The modest fees don’t compensate for that,” said Grossman. “It’s a combat zone out there.”

Absent any changes, “public companies will find it more difficult to get high-quality board members,” predicted Grossman.

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. His new book is “The Pied Pipers of Wall Street: How Analysts Sell You Down the River,” published by Bloomberg Press. He can be reached at sevencontinents@mind spring.com.

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