Bull in the Market

South Florida philanthropist Richard Bronson built his fortune on the shady side of Wall Street

Thomas Benson, president of a company called Stockbroker Analysis in Naples, Florida, has been hired by several former Biltmore clients who have sued the company. After analyzing dozens of stock purchases, he concludes: "In my opinion, Biltmore is one of the worst brokerage firms in the business. I have one piece of advice for anyone considering doing business with Biltmore: Don't. A person would be better off donating the money to a charity. In either case it will be gone." As for Bronson's donations around town, Benson adds, "He's doing it all with OPM -- other people's money. It sounds to me like he's going after do-it-yourself credibility." (Biltmore's general counsel, William Nortman, dismisses Benson as a hired gun paid by people suing Biltmore.)

Then there's Dr. Robert Flickinger, a 74-year-old veterinarian in Burnsville, Minnesota, one of 25 investors the SEC named as potential witnesses in its 1993 case against Biltmore. "He's nothing but a gangster," Flickinger says of Bronson, who he's never met. The doctor says he lost $240,000 in savings through two different Biltmore traders in 1992.

In all, since Bronson took over Biltmore, the company has paid more than $3.6 million in settlements and fines to the SEC, state governments, and individuals. Bronson has personally has shelled out at least $730,000 in such payments since 1991. Among the nation's 5500 registered brokerages, only 40 have been taken to National Association of Securities Dealers (NASD) arbitration more than Biltmore, according to the Securities Arbitration Commentator, a New Jersey newsletter. In 1995-1996 alone, clients won $1.6 million in damages from Biltmore.

Reached at Channel magazine's new office in the Design District, Bronson said he had heard New Times was asking questions about his business practices and declined comment. Nortman contends a misguided government, some bitter investors, and a hectoring press have exaggerated problems. Despite all the enforcement actions, Biltmore has never done anything wrong, nor has it been criminally charged, he says, adding that the company has made money for plenty of people. The SEC and clients have sued the company because of a "litigious culture."

"Biltmore is a firm that specializes in speculative investments," Nortman says. "We do not hold ourselves out to be a firm that pursues a conservative investment strategy. And today, when someone loses money, they sue."

After years of a bull market, more people own stocks today than ever before. As a result, many naive investors have become easy prey for unethical traders.

"Before a reputable broker will open an account for you, they send you a detailed questionnaire," says University of Miami law professor Richard Mendales. Among other things, that document should ask about your earnings and familiarity with the market, he adds. Under an SEC edict called the suitability rule, brokers must consider investors' income, age, and familiarity with the market when selling or buying stocks for them. "They are only supposed to sell you things that are appropriate under the circumstances," Mendales said. Authorities can fine brokers who violate the suitability rule, and can even revoke their licenses.

But an entire industry works on the fringe of SEC rules. So-called boiler rooms employ dozens of young brokers who make up to 500 cold calls a day pushing unsafe securities (penny stocks) on unsavvy investors. Among their ploys is the following scheme, experts say: They buy all or most of the stock in a small company and hold it until the price goes up. Then they sell off their shares to clients at a hefty profit. When the price plummets, the clients lose.

Traders at these firms sometimes lie to a client about past performance of a stock. This is called "misrepresentation of fact," another SEC transgression. Sometimes an unethical broker will simply act as if the client's money is his, then buy and sell at will. This is called "unauthorized trading." Such infractions "have become a very severe problem," says Indiana's Securities Commissioner Bradley Skolnick. "The bull market on Wall Street has fueled the bull market in fraud."

Enforcement agencies have scrambled to crack down. In the past two years more than twenty states coordinated a sweep of companies known for pushing small risky stocks. Accusations were leveled, fines were levied, and some traders were suspended. Many disciplinary actions are still pending. In September 1997 a U.S. Senate subcommittee convened to hear testimony about growing securities fraud and how to effectively control it. One expert provided a chart showing how traders from companies the government had shut down were forming their own ventures and perpetuating the malfeasance. Figuring prominently on the chart were Bronson and Biltmore Securities. Over the years Bronson has been repeatedly accused of unauthorized trading, violating the suitability rule, and improperly supervising traders, among other things. Sometimes Bronson is named in the allegations because he initiated the trades, other times he's named because he's an officer of the firm.

In some ways Richard Bruce Bronson's reticence to speak with New Times is ironic. His first professional love was publishing. When he was growing up on Long Island, he worked on the school paper at Syosset High, then studied journalism at Northwestern University and the State University of New York in Buffalo, from which he graduated in 1975. After college he worked for a year in typesetting and graphic design at a Manhattan publishing house called Gralla Publications. In 1977 he began a decade of work for a company called Bronson Imports.

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