Some of L.A.’s richest men are big victims in the ongoing saga at American International Group Inc., whose shares have lost nearly half their value over the past year.
Last month, AIG’s chairman and chief executive, Maurice “Hank” Greenberg, was forced to resign over an investigation into transactions that may have artificially bolstered AIG’s balance sheet.
But the probes and share decline date back even further, and have cost a handful of the local business elite more than $1 billion on paper.
In October 2004, AIG was named in an investigation of fraud and anti-competitive practices in the insurance industry that targeted bid-rigging at Marsh & McLennan Cos. Two AIG executives pleaded guilty to fraud. Since then, AIG’s stock has fallen from the mid-$70s to the low $50s last week.
Philanthropist and civic leader Eli Broad, who sold his financial services firm, SunAmerica, to AIG in 1998, holds 29.6 million AIG shares, or roughly 1.1 percent of common stock, according to filings with the Securities and Exchange Commission. Those holdings, now valued at $1.54 billion, have contracted by about $718 million in the past year.
Broad, No. 4 on the Business Journal’s list of richest Angelenos last year with an estimated net worth of $5.3 billion, was an AIG director until 2003. He has not sold any shares since 2002, according to market research firm Thomson Financial.
Broad did not return a call seeking comment.
Also amassing significant paper losses are Steven Udvar-Hazy, chairman and chief executive of AIG unit International Lease Finance Corp., and his former partners, Leslie and Louis Gonda.
AIG acquired their aircraft leasing company for $1.3 billion in stock in 1990, and those holdings have since multiplied making Udvar-Hazy, owner of 31.7 million AIG shares, No. 7 on the Business Journal list with a net worth of $2.6 billion last year. AIG’s stock decline has cost him roughly $769.7 million in the past year.
Leslie Gonda, who owns 10.8 million AIG shares, retired from the board in 2000. His paper losses total about $262 million; he placed 17th on the Business Journal’s list last year at $1.4 billion.
His son is Louis Gonda, worth an estimated $1.6 billion last year and No. 15 on the list. His holdings in AIG are not disclosed.
Also hit was former Broad aide Jay Wintrob, the locally based president of AIG Retirement Services, who owns 1.8 million AIG shares and has lost $43.7 million on paper.
In addition, California’s large public retirement systems California Public Employees Retirement System and California State Teachers Retirement System have sued AIG to recover $400 million in stock losses suffered since February.
Kate Berry
Opaque Look
California’s paint-job king, Earl Scheib Inc. has painted its shares pink. Last week, the company delisted itself from the American Stock Exchange and moved to the Pink Sheets.
Last week’s delisting is the culmination of a two-year effort to change the corporate structure of the Sherman Oaks-based company known for its inexpensive paint jobs.
Scheib’s board decided in 2003 that it should merge or sell itself to another company. “Quite frankly, the company was not doing very well at that time,” said Chief Executive Chris Bement. “We needed to absorb administrative costs with another entity or enter a strategic alliance with somebody else.”
In 2004, the company hired investment bank Ryan Beck & Co. and it was close to cementing a $15 million sale last August to a private real estate investment firm a $3 million premium over its market value at the time. But Earl Scheib withdrew from the deal when the investment firm failed to honor certain deadlines.
Now, Bement said he sees delisting as a way to end Scheib’s obligation to provide periodic financial filings with the Securities and Exchange Commission. Many small companies maintain that the strengthened reporting duties that arose from Sarbanes-Oxley requirements have made being a public company too burdensome.
Scheib, known for its founder/TV pitchman Earl Scheib, who died in 1992, is one of the largest automotive paint body shops in the country, with 108 stores in California, Nevada and Arizona.
For the third quarter ended Jan. 31, Scheib reported a loss of $1.3 million compared with a loss of $2 million for the like period a year earlier.
Revenues rose to $9.7 million from $9 million.
Hilary Potkewitz
Hong Responds
Benjamin Hong, the former chief executive of Nara Bancorp, tried to set the record straight last week about the circumstances of his ouster from the Los Angeles-based bank’s board.
Hong fired off a letter to board members and his successor, Ho Yang, admonishing them for actions that “lack business judgment” and have “created much confusion among shareholders.”
Hong was ousted from Nara last month after Yang discovered a letter, signed by former company Chairman Thomas Chung, in which the board agreed to defer a $600,000 bonus payment to Hong in 2002 until he retired in the first quarter of 2005.
Hong said in the letter that he was never paid the $600,000 and “would have been willing to release the bank from its obligations” had the board given him a chance.
Besides, he added, two other board members, John Park and Yonghwan Kim, served on the special audit committee investigating the case and approved Chung’s letter in 2002. “I believe they both have a conflict of interest here and should have resigned from the committee as Thomas Chung did.”
In the wake of their effort to remove Hong, Nara’s new management team now faces a series of potential hardships, including the restatement of 2002 earnings and the possibility of being delisted by the Nasdaq Stock Market. The company’s stock price has declined 45 percent in the past two months.
“In my opinion, this is not the way to serve for the best interest of shareholders,” Hong summed up in his letter.
A call to Nara was not returned.
Kate Berry
Shareholder Fight
Santa Ana’s Powerwave Technologies Inc. could face a shareholder battle over its proposed $118 million buy of the commercial wireless business of Remec Inc.
SACC Partners LP, a Los Angeles-based investment fund, said Powerwave’s offer for the Del Mar-based unit is too little, setting the stage for a potential proxy fight over the acquisition.
The investment fund, an affiliate of Los Angeles broker-dealer B. Riley & Co., owns 7.5 percent of Remec, according to a recent filing with the Securities and Exchange Commission.
Powerwave makes radio frequency amplifiers for use in wireless phone networks. Remec has several units that make voice and data transmission gear. The company’s commercial wireless unit has annual sales of $250 million.
The sale also includes plants in China, Costa Rica and the Philippines. In 2003, Powerwave closed a Santa Ana plant and moved production to plants in Asia. The deal is expected to close by the summer.
Powerwave declined to comment on the filing. Neither Remec nor SACC Partners returned calls.
Orange County Business Journal
