It isn't exactly a typical resum for success on Wall Street. Over the past 17 years, Stephen R. Goodwin has been suspended by the New York Stock Exchange, fined and suspended by the National Association of Securities Dealers, and expelled from the National Futures Assn. But that hasn't stopped Goodwin, the proprietor of a brokerage firm named Cartwright & Goodwin Inc., from assembling a roster of prestigious clients including IBM, the New York Power Authority, and New York's Metropolitan Transportation Authority. Now, Goodwin is angling for something bigger: He wants to become the first independent black Wall Streeter to put together an open-ended mutual fund investing in South Africa. Says Goodwin, 45: "This is a fund designed by black people for the good of Africa."
It's called the First South African Fund. Goodwin hopes to raise as much as $125 million and market the fund mainly to "big fish"--state and municipal pension funds that had boycotted South Africa in the face of international opposition to apartheid. The fund's 84-page prospectus is now being reviewed by the Securities & Exchange Commission. But Goodwin's record and that of his brokerage and money-management operations could well put investors on their guard.
WITHDRAWAL. For one thing, despite his gilt-edged clients, Goodwin's nine-year-old brokerage firm has never been more than a modest success. Even with affirmative-action programs encouraging state, municipal, and corporate treasurers to trade with minorityowned brokers such as Goodwin's, C&G achieved revenues of only $196,000 in 1992, the most recent year for which figures on his privately held firm are available.
Much more important, Goodwin did not tell the SEC, prospective investors, or, a source says, even his own fund's attorneys, the international law firm of Baker & McKenzie, about suspensions and fines by the NASD, NYSE, and National Futures Assn. dating back to 1977 (table, page 92). He was not strictly required to do so by law, but such disclosure is customary for mutual-fund registrants. Goodwin says Baker & McKenzie did not ask him to detail NASD or other regulatory violations on its disclosure form. "If I'd thought this pertained to the fund," he adds, "I would have said so." But one day after BUSINESS WEEK asked the law firm on Feb. 3 if it was aware of Goodwin's regulatory record, Baker & McKenzie withdrew as the fund's counsel. Other than confirming the withdrawal, Baker declined to comment.
Goodwin, who serves as the fund's chairman, insists he won't scrap First South African. Moreover, he maintains that because a wholly owned subsidiary of his brokerage house, C&G Asset Management Inc., will actually run First South African, investors should be unconcerned. "C&G Asset Management has no legal, state, civil, or regulatory record whatsoever," Goodwin says. In response to numerous requests to respond to specific allegations against him, Goodwin also maintains that his run-ins with regulators stem from technical infractions. He chalks them up to overly enthusiastic enforcement of changing securities laws and to white investigators harassing a small, black securities dealer. "I don't even consider this a negative in my life," he says. "I didn't steal any money...I didn't defraud anybody. All I did was mess up a lot of administrative laws and procedures.... This is a whole lot of hullabaloo over nothing."
BLANK SPACES. The SEC may see things differently. Gladwyn Goins, associate director of the commission's Investment Management Div., says the agency has sent Goodwin a letter asking him to correct "numerous serious deficiencies" in the fund's prospectus. Goins says they include blank spaces for the address of the fund, custodian, distributor, and disclosure of risks investors may face. An industry source, though, says that to get the review process started, many funds typically submit prospectuses without such information, then fill in the blanks in subsequent filings. Although Goins says the SEC routinely checks disciplinary records of fund applicants, it hasn't done so yet because the prospectus was so inadequate in other respects.
Goodwin's embellishment of his Wall Street record also may give investors cause for concern. Although he claims in publicity handouts and SEC filings to be a "world-renowned economist" with a B.S. in economics from Cornell University, Goodwin actually holds a degree in industrial and labor relations, the university says. He also claims to manage $70 million. But that's news to officials of many of the 35 state and municipal pension funds C&G Asset Management listed as customers in the 1994 edition of Money Market Directory, a standard reference. It is published by Money Market Directories Inc., a unit of McGraw-Hill Inc., which also publishes BUSINESS WEEK. "I have no idea who they are," Dan Indiciani, controller of the Boston City Retirement System says of C&G. "He's not listed as one of our managers."
Goodwin maintains "the Money Market Directory list is people we have done business with on the broker-dealer, asset-management side" since 1985, and that he is capable of managing a big mutual fund. Some customers praise his ability to make money for them by accurately calling turns in interest rates. "He has done well for us," says Wes Collins, deputy treasurer of the New York Power Authority, who trades part of the utility's $1.5 billion fixed-income portfolio through Goodwin. "He's always coming up with something new."
Goodwin insists his knowledge of the South African economy is just as keen. Brandishing a hypothetical blue-chip qtock and bond portfolio, he says that, on paper at least, it has beaten the Johannesburg market since December. Says Goodwin: "You can make a hell of a lot of money--beyond your wildest imagination." Goodwin has even sent faxes to pension fund managers around the U.S., asking them to subscribe, "as soon as possible," to a pair of guides to the South African equity and bond markets, at $9,995 per copy. But do the publications exist yet? "No," Goodwin says.
Even if the guides were available, Goodwin still lacks an essential qualification for any emerging-market fund manager: local experience. Although he professes to be an authority on South Africa, he has never visited the country. With South Africa facing possible violence as elections approach in April, that may be a critical shortcoming. Says Peter Jardine, a New York-based expert on South Africa who consults for Lehman Brothers Inc.: "I know South African markets, but even I wouldn't try to watch them from here."
So how will Goodwin scope out the best South African companies? "Once we put an advertisement in the papers, they'll find us," he says. Instead of hiring an on-the-scene money manager--commonplace at many international funds--Goodwin says he'll rely on research from a Johannesburg stockbroker, Frankel Max Pollack Vinderine, and on advice from Paul Sarnoff, a veteran precious-metals consultant and newsletter publisher based in Baldwin, N.Y. He plans to appoint his mother, Thelma, a retired Internal Revenue Service secretary and student of black cultures, to the fund's board. Says Goodwin: "She's really into this sort of thing--looking into culture and tribes."
Goodwin isn't the only one bringing South African funds to market. Morgan Stanley & Co. and Alliance Capital Management are players. So is Bear Stearns Cos., in cooperation with London's Robert Fleming & Co. So in the end, some pros say, Goodwin's lone selling point will be the fund's concern for black business. Goodwin promises to invest 10% of First South African's assets in emerging companies run by blacks or other entrepreneurs. "Because he runs a minority firm, he does have some sympathy," says Jardine. "Maybe because of that, he'll have better access." That may be true. But any investor in First South African might want to make a careful examination of its manager's record before writing out a check.
1977 Goodwin is barred from employment at any New York Stock Exchange member firm for six months. NYSE concluded he failed to disclose he had been fired by two brokerage houses.
1989 National Association of Securities Dealers (NASD) suspends Goodwin's firm, Cartwright & Goodwin, for failing to submit financial information.
1990 NASD fines Goodwin and C&G $25,000. Goodwin is suspended from NASD for 20 days.The agency charges C&G failed to maintain enough capital, filed no annual report, and took part in at least two municipal-bond underwritings without the association's approval.
1992 NASD fines Goodwin $15,000 and suspends him for two years. NASD maintains Goodwin handled trades in equities although only registered to trade government securities. It also charges he failed to maintain enough capital.
1992 National Futures Assn. revokes Goodwin's membership for failing to pay the NASD's 1990 fine. Charges Goodwin didn't disclose his NASD record to futures-industry regulators and provided "disingenuous and unbelievable" testimony during a hearing on the allegation.
Goodwin maintains allegations against him are largely technical, stem from overly enthusiastic enforcement of changing securities laws, and represent harassment of a small, black securities dealer.