The recent news that regulators had expelled philanthropist-about-town and South Beach hip-guy Richard Bronson from the securities industry didn't exactly shock the financial world. After all the 44-year-old investment broker has a reputation as a scammer. And he's been out of the business for more than a year.
Yet the harshness of the National Association of Securities Dealers' (NASD) February 11 order was surprising. The agency not only banished Bronson, his partner Elliot Loewenstern, and Fort Lauderdale's Biltmore Securities, Inc., but it required them to pay a total of $7.1 million in fines and restitution to defrauded investors.
Bronson and Loewenstern must personally cover $1.7 million of the total. To raise his part of the penalty, Bronson has taken out a mortgage on his two-million-dollar Golden Beach villa, according to his lawyer William Nortman. This past week Bronson sold his South Beach nightclub, Shadow Lounge, to partners Dade Sokoloff and Bobby Brandt. "I'm glad this is over for him," Sokoloff says. "He can close this chapter of his life and move on to the next chapter."
Bronson's ethically challenged business practices were detailed in a New Times cover story ("Bull in the Market," September 10, 1998). The article explained how Biltmore, which Bronson and Loewenstern ran, built a national reputation as one of the most unscrupulous trading houses in the country, even as Bronson entered Miami's most rarefied social circles. After arriving in South Florida in 1992, he doled out charitable donations in excess of one million dollars to the Miami City Ballet and the Museum of Contemporary Art, then landed positions on the boards of both institutions. Last year he launched the fashion magazine Channel.
Even before the NASD's announcement of the penalty, Biltmore had paid thousands of dollars in fines for misrepresenting stocks and using fraudulent sales techniques. In 1995 alone the company settled a lawsuit with the Securities and Exchange Commission for one million dollars.
In its February 11 ruling, the NASD alleged five transactions that took place between 1993 and 1995 defrauded investors. The agency accused Bronson and his company of manipulative conduct, fraudulently failing to disclose adverse interests, and excessive underwriting compensation.
Nortman claims the company never "admitted or denied" the alleged misdeeds. Biltmore agreed to the NASD actions, he says, because it could not afford to keep fighting lawsuits brought by regulators and investors. "No matter what you want to say about the kind of car Mr. Bronson drives or how he lives, neither he nor Mr. Loewenstern has shirked their responsibilities," Nortman maintains, referring to a fund that has been set up to pay back investors. (Bronson drives, among other cars, a Ferrari.)
This past summer Biltmore's assets were sold to FAS Wealth Management, in Sarasota. Several former Biltmore traders work at FAS, according to Barry Goldsmith, the NASD's executive vice-president of regulations. The agency intends to monitor the company to make sure abuses aren't repeated.
One former Biltmore employee, who asked not to be identified, was impressed by the expulsion. "This is pretty heavy," he notes. He describes the company's office as a place where shouting and threats were the norm. Among his tasks, he asserts, was cold-calling potential investors and convincing them to buy high-risk stocks. The trader alleges he often misrepresented securities. "Of course if I could take Biltmore off my resume I would," he says. "But I can't: It's on my permanent record [filed with the NASD]."
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To some Biltmore investors and their advocates, the settlement cost is not high enough. "It's a very significant enforcement, but it's too little too late," contends Scott Link, a West Palm Beach lawyer representing a retired man who claims Biltmore's illegal practices cost him $160,000. Link's client will recover some of that money now. "[Bronson] already reaped the rewards of bilking investors out of their money. And that's the problem with enforcement in the securities industry. It's too slow," Link explains.
Adds Thomas Benson, president of Stockbroker Analysis, a Naples, Florida, firm that has analyzed the performance of Biltmore stocks: "[Securities] is the one industry where crime truly does pay. The odds of going to jail are slim to none, and when you do get caught, [investors] rarely get all their money back."
Benson wasn't impressed by the $7.1 million fine. "Compared to all the money they made, $7 million is nothing."