The Irvine-based brokerage Cruttenden Roth put John Marrone in charge of its new retail offices in West Los Angeles’ Westwood Gateway building with a simple yet formidable assignment: build up a profitable operation of stockbrokers who serve “ordinary” investors, i.e., not institutions.

The Westside of Los Angeles, where all the majors plant their first-rate brokers, is hardly virgin territory.

The track record to date? “We now have 10 brokers and I want to hire 10 more, but there isn’t space in the building,” said Marrone, a veteran of Sutro & Co. Inc. and industry giant Merrill Lynch.

Marrone’s task was made more difficult by the near-collapse of the initial public offering market this year especially given that one of Cruttenden Roth’s fortes has been underwriting IPOs, which are sold through its retail and institutional network. The IPO market, aside from a few Internet stars, has been dead since June. But Marrone said he isn’t worried.

“Even in the flush times, only about 10 percent of the trading we do on behalf of clients is in Cruttenden Roth offerings,” said Marrone. “We’re trying to build a well-rounded office that is complemented by our underwritings, not dependent on them.”

From Marrone’s perspective, it is great time to hire experienced stockbrokers. The big boys like Merrill Lynch and Smith Barney Dean Witter increasingly are pushing their brokers into asset-management arrangements, in which a broker makes an annual stipend based upon the assets of his or her clients, usually about 1 percent.

Also, the large brokerages are encouraging brokers to place clients into proprietary products, such as mutual funds managed by the brokerage. And like large employers everywhere, the big brokerages are watching their bottom lines, and trying to compress salaries for brokers.

Marrone scoffs at such arrangements as reducing the once-proud profession of stockbrokering to “salaried salesmen.”

“I believe there is still a section of the investing public, and of stockbrokers, who want to actually buy and sell stocks, and earn or pay commissions on trades,” said Marrone.

Armed with the ability to pay fat commissions on trades (by industry standards), Marrone has attracted the 10 experienced brokers within six months, and is touring the floors of the Westwood Gateway in search of space.

Marrone’s payout to brokers? If Cruttenden Roth charges the client $1,000 in commissions, the broker keeps about $400 or so. The major houses pay brokers around 25 cents on the dollar charged in commissions, when they pay commissions to brokers at all.

“An average broker working for me can make $250,000 a year,” said Marrone. “And they get to be a stockbroker again.”

Taking a stake

Ken Lufkin, who runs the Malibu-based money management shop Intrinsic Value Asset Management, last week filed a 13-G statement with the Securities and Exchange Commission, revealing a 5.3 percent stake in Massachusetts-based Immulogic Pharmaceutical Inc., a small-cap biotech outfit.

What’s the appeal of Immulogic? On the product side, it is testing vaccines for cocaine and nicotine that render those drugs harmless in the human body.

Immulogic is testing a procedure by which proteins are attached to cocaine or nicotine molecules. When injected, the body “recognizes” the drugs as invaders, and an immune system response is triggered.

Later, when the drugs are taken recreationally, the same immune system response is triggered, and the drugs are rendered inert before they can enter the brain, said Lufkin.

Obviously, drug users won’t get a charge out of snorting or smoking, and may stop thereafter, even if they succumb to temptation. “That is the hope,” said Lufkin. “The rats (who were vaccinated) don’t push the cocaine lever anymore.”

Tests on real people are slated, although actual FDA approval is not even on the horizon.

Lufkin, who touts himself as a conservative investor, said he looks for low-risk stocks. So why buy an unproven biotech stock, even if promising? Immulogic has cash equal to $2.27 a share in the bank, yet the stock was trading last week near $1.50, answered Lufkin. The company is near break even, profits-wise.

He likes management and said the company has prospects of signing a licensing agreement with a major pharmaceutical distributor although even Lufkin concedes this is a common story for small biotech start-ups, and most anticipated licensing agreements do not come to profitable fruition.

“A lot of companies have cash, but they spend it all in R & D;, and have to get fresh cash infusions, or sell more stock (thus diluting existing shareholders),” said Lufkin. “I look for companies no longer doing the burn” as is the case with Immulogic.

Lufkin also points out that Immulogic has been underwritten by some respectable names, such as Merrill Lynch, Morgan Stanley and Hambrecht & Quist.

Still, after five straight years of losses, Immulogic’s slow grind toward profits has worn down the patience of investors: In 1996, a share sold for more than $20. “I think we have reached the stage where there will be positive news on the company, and you aren’t taking much risk,” Lufkin said.

Moving back downtown?

Sutro & Co. Inc. is considering a plan to abandon its space in the Westwood Gateway building in West Los Angeles and move its investment bankers and others into the Arco Towers downtown, where it has a lot of fallow space.

“We are still in the process of hiring a space planning firm. No decision has been made yet,” said Tom Weinberger, Sutro & Co. president. Weinberger is looking at late 1999 before changing locations.

Sutro does have space in the tower that isn’t fully utilized, left over from days when it tried to establish a retail operation there.

Money supply worries

The Federal Reserve Board money supply figures are probably being scrutinized by investors and money managers more closely than anytime since the 1980s.

Fed-watchers are looking at every financial tea leaf, trying to determine how far the central bank will go to stimulate the domestic economy, given the near pandemic weakness in the Far East, softness in Latin America, and even the threat of deflation.

The figures do suggest a more stimulative Fed policy this year than perhaps anytime in the 1990s, said Michael Bazdarich of La Canada-based MB Economics, and commentator for “CBS Marketwatch.”

Through most of the 1990s, and certainly in 1996 and 1997, the Fed kept a tight lid on the money supply, letting it rise by 3 percent or so. But this year, there have been periods of double-digit growth (at annual rates), and in the latest measured 13-week period (ended in November), the supply grew at an annual rate exceeding 14 percent.

“Still, I wouldn’t read too much into the numbers,” said Bazdarich last week. “The Fed is being more stimulative, but not that much.” Some investors are drawing money from overseas, or out of the stock market, and putting it into bank accounts or other cash investments which are measured in the money supply, said Bazdarich. Those bulges in the money supply as much reflect investors hiding from risk as a Fed stimulative policy, said Bazdarich.

Contributing Reporter Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].