Securities Veteran Turning Into Accounting Watchdog
Wall Street West
by Benjamin Mark Cole
He’s 70 years old, yet Gerry Boltz remains one of L.A.’s premier securities industry financial bloodhounds. Now a partner with law firm Bryan Cave LLP, Boltz was the Securities and Exchange Commission’s regional administrator in Los Angeles from 1972 through 1979.
Boltz still shows up at the office every day. He has to, because these days he’s in demand from public companies that are trying to clean house. “This seems to be a growing business. It’s the modern-day version of, ‘What did you know, and when did you know it?'” Boltz said.
Boltz is usually hired by a board’s audit committee or a special committee of outside directors to ferret out accounting problems.
“My job is to go in, find out how big is the problem, how long it lasted, and how high up the management ladder it went,” Boltz said last week.
Post-Enron, public companies everywhere want to reduce accounting gray-zone activity, and audit committees are increasingly inquisitive about what is going on under their noses. Boltz believes that much needs to be done by the SEC and the accounting profession to preserve integrity in capital markets. He advocates a better-financed and better-paid cadre of SEC professionals, and a new, independent oversight board for the accounting industry. “Small prices to pay for a well-governed and respected capital market,” he said.
Last week we reported a rush of business for lawyers representing investors who contend they have been harmed by the practices of Merrill Lynch and others on Wall Street.
So it stands to reason that phones are also ringing at firms defending securities-industry types. One regional defense shop is Bell, Simpson Abbot in downtown Los Angeles, where nameplate partner Michael Abbott has spent 30 years defending stockbrokers, investment bankers, brokerages and others. There is more defending to do than ever, Abbott said.
According to figures provided by the Securities Industry Association, the number of filings for binding arbitration rose 25 percent last year, and are up another 25 percent this year.
NASD figures indicate that investors win something in more than half the cases. The percentage could rise as New York Attorney General Eliot Spitzer makes public more details about alleged conflicts of interest by the major houses.
Still, Abbott recalls that not all losses go against the individual investor. “We had one guy who came into a major brokerage in town and wrote a check for $1.5 million, and bought a lot of stock at the top of the market. The stocks tanked, and guess what the check bounced,” Abbott said.
“The best part is this. His girlfriend came in and wrote a check for $600,000 to cover the losses and that check bounced too.” Abbott was called in to try to collect the lost dough. “Everybody lost a lot of money on that one,” he said.
There aren’t too many venture shops in Beverly Hills, let alone ones participating in $21 million fundings for later-stage high-tech outfits.
But then Lexington Ventures, which just announced that it put $5 million into a “series C” round of financing for Chatsworth-based Sabeus Photonics Inc., has unusual lineage.
The $150 million venture fund is an arm of Beverly Hills-based Lexington Commercial Holdings, better known as a real estate investment shop owned by Louis Gonda, founder of International Lease Finance Corp., the jet-renting house. The fund was started up last year.
In addition to Sabeus, the Lexington portfolio has been concentrating on Internet infrastructure-type companies. Other investments include Firststream, a company developing software to allow video transmissions over narrow-band wire; Omnipod, a company developing software to make Internet communication easier; and DigitalDeck, also a developer of software to enhance Internet communications.
With tech outfits dying on the vine, many limited partners in venture funds are pressuring managing partners to cut spending and reduce past commitments to provide more cash.
Not so at Westside-based Rustic Canyon Group, says Rene LeBran, managing director (Rustic Canyon was formerly known as TMCT Ventures). “Because of the way we were structured, we don’t have a lot of limited partners anyway,” she said.
In fact, Rustic Canyon is largely “Chandler money” proceeds from when the Chandlers sold Times Mirror Corp. (owner of Los Angeles Times) to Chicago-based Tribune Co. in 2000. At $500 million, Rustic Canyon never reached the $1 billion and $2 billion size of some funds, which may have contributed to the drumbeat for commitment cutbacks.
Not that all is roses at Rustic Canyon. Finding new money to inject into struggling start-ups is difficult. “In this environment, the IPO exit strategy is out,” LeBran said.
Joseph Woolf, long of the entertainment division of Union Bank of California (where he lent $2 billion to Hollywood) has signed on with brokerage Gerard Klauer Mattison in Century City.
Woolf joins David Merritt (formerly partner in charge with KPMG Peat Marwick’s entertainment division) and Ron Silverman (longtime industry lawyer who joined GKM last year) in GKM’s Entertainment Media Advisory Group.
So the troops are assembled, but what do do?
“Private equity and debt,” said Woolf. Hollywood is still not the sort of place to produce IPOs, or bond issues. But many prosaic companies distributors, production houses, and companies in the digitization end of the industry need capital. Woolf wants to link the capital needy with the capital rich.
Urge to Merge
The largest institutional shareholder in Hewlett-Packard Co. is downtown-based money manager Capital Trust Cos., parent of Capital Research Research & Management (mutual funds) and Capital Guardian (institutional money), which together own 3.4 percent of HP’s common stock.
HP shareholders recently approved a merger with Houston-based Compaq Computer Corp., a marriage stiffly resisted by board member and 18 percent shareholder Walter Hewlett. The razor-thin, and legally contested, margin was less than 1 percent.
Capital Research spokesman Chuck Freadhoff declined to state how Capital voted its shares in the ongoing battle, but one insider said Capital gave the thumbs-up to HP’s proposed merger.
Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at email@example.com.