News: Analysis & Commentary: SCANDALS
GOLDINGER--HE'S NOT THE MAN WITH THE MIDAS TOUCH
The SEC is probing trading practices at Capital Insight
He's normally quick to answer questions from the press about investing and markets, but these days, S. Jay Goldinger isn't returning calls. Following the December disclosures of massive investment losses at two of his biggest clients, Goldinger effectively shut down operations at Capital Insight Brokerage Inc. and has instructed his staff to refer all inquiries to his lawyers.
At the heart of the firm's downfall seems to be a mistaken bet that interest rates would rise in late 1995. When rates instead declined, Goldinger faced big losses in the Treasury futures contracts he had bought for clients through Refco Group Ltd., a Chicago clearinghouse. So far, two companies have declared losses that Goldinger's lawyer confirms derive from investments with Capital Insight: Retailer Pier 1 Imports Inc. announced on Dec. 26 that it had lost $20 million, and manufacturer PairGain Technologies Inc. revealed on Dec. 1 that its account was $16 million in the red.
AMAZEMENT. Losses on futures are nothing new. But at least one of these companies claims its funds were to have been invested in low-risk instruments. That Goldinger could find himself in his current position amazes many who believed in the public persona he had created. "I was shocked," says Brien Lundin, president of Jefferson Financial, the corporate host of a New Orleans investment conference Goldinger regularly addressed. "He's one of the last people I would have imagined being involved in risky investments."
For years, Goldinger assiduously polished his public image, getting himself quoted regularly and making high-profile charitable donations. He became a financial-advice columnist in 1988, when he offered his services to Charley Blaine, business editor of The Times-Picayune in New Orleans. Blaine had him write a weekly piece that Goldinger eventually syndicated to several other papers. "He's a fairly hyperactive guy who liked to keep his name in the public eye," says Blaine, who canceled the relationship after Pier 1's loss became public. Goldinger's visibility fed on itself. Lundin says he was an especially popular speaker at New Orleans conferences because of his syndicated columns.
Goldinger began his investing career in 1977 at Cantor Fitzgerald LP. He left in January, 1988, to start Capital Insight with three colleagues. The new firm thrived despite a Securities & Exchange Commission probe into insider trading while Goldinger was at Cantor. According to the SEC, Goldinger gave inside information about the pending takeover of Thrifty Corp. to Capital Insight co-founder Bert R. Cohen, who traded on it for his own account and others'. Last May, a California district court dismissed the charges, but the SEC is appealing. Another problem: Capital Insight managed to lose $10 million for a client, Triton Group, between 1989 and 1990.
PIER 1 ACCOUNTS. Still, by 1993, Capital Insight was managing cash accounts for Pier 1 and PairGain as well as investing for as many as 43 other clients--including top executives of Pier 1 and PairGain.
For PairGain, things went fine until late 1994, according to Robert A. Hoff, a director. Hoff will not name Capital Insight as PairGain's adviser but says that's when the company explicitly asked its adviser simply to buy and hold ultrasafe Treasuries and stop trading in futures and options. In June, 1995, management asked that the accounts be liquidated--and that's when trouble hit. The accounts took five months to clear, and PairGain was finally told it had lost $16 million of its $28 million cash account. Goldinger's lawyer, Brian O'Neill, did not return calls asking for comment on Hoff's depiction of events. Refco's lawyers assert that Goldinger had full discretion over the accounts and that regular statements were sent to all of his clients.
PairGain is considering legal action: It has hired Deloitte & Touche to investigate the losses and a law firm to advise outside board members on their options. Pier 1 executives will not comment on Capital Insight, though Director Sally F. McKenzie says the board was "completely shocked and horrified" by the losses, which it learned about on Dec. 22. O'Neill didn't return calls asking about McKenzie's statement.
Meanwhile, the SEC and Commodity Futures Trading Commission are investigating--requesting trading data and other documents from investors and Refco. Goldinger may be silent now, but eventually he'll have to explain why he pursued a strategy that lost a mint.By Nanette Byrnes in Los Angeles, with Stephanie Anderson Forest in DallasReturn to top