Other People's Money
Richard Bronson's fortunes have ripened in the South Florida sunshine like a juicy mango. A virtual unknown when he arrived six years ago, he has constructed a wealthy and glamorous lifestyle that could exist only in the subtropics.
The road to glitzy prosperity started when Bronson and fellow former New Yorker Elliot Loewenstern bought Biltmore Securities, Inc., a Fort Lauderdale brokerage house, in 1992. In four years the two turned Biltmore from a modest business into a very prosperous one located on North Andrews Avenue. (In a 1996 income statement, Biltmore listed revenues of $45 million.) Bronson hired and trained the brokers. He cajoled, berated, and even bribed them to improve. He and Loewenstern plotted the aggressive, and apparently successful, business strategy.
That "strategy" is described in a lawsuit the federal Securities and Exchange Commission (SEC) brought against the company in 1993: Bronson and Loewenstern would hire inexperienced young men to cold-call potential clients. The pair would put new recruits through a kind of boot camp, referring to investors as "degenerate gamblers," "piker pieces of shit" (people who would not invest large sums), or "whales" (people who would).
Bronson allegedly stalked the aisles between traders' desks, tossing out $100 bills as incentives, according to former Biltmore brokers interviewed by lawyers involved with the suit. He once paid a young broker a couple of hundred bucks to gulp down a wad of wasabi, the fiery sauce served with sushi. At morning sales meetings, he would belittle traders who weren't pulling in sufficient profits.
"Customers like a good fight.... You beat them up in the beginning, and once you break them then you hold their hands like babies through the closing," one Biltmore supervisor told employees, according to court papers. Bronson allegedly told brokers not to accept no for an answer -- until the prospect hangs up.
But the Bronson who once terrorized his employees in Fort Lauderdale has a doppelganger, a new and reformulated Bronson, a 44-year-old millionaire enjoying the fruits of his success and continuing to build a new image on Miami Beach. He can now relish his prosperity while steering his Ferrari to the office of his new fashion magazine. He can impress leggy models at the lethally cool South Beach nightclub he opened last year. And in quiet moments at his $2 million oceanside villa, he can contemplate an art collection that includes some of the nation's hottest painters.
In the subtle sport of social advancement, the ruddy-faced stockbroker has proceeded with an only-in-South-Florida speed. His philanthropy is already legendary. He has distributed hundreds of thousands of dollars to the Miami Beach Police Athletic League, the Michael-Ann Russell Jewish Community Center in North Miami Beach, and the Museum of Contemporary Art (MoCA) in North Miami. Even more important in fixing his place in the region's glittery constellation: $1 million donated over the past three years to the Miami City Ballet.
"He is a phenomenal arts patron," says Susan Fox, the ballet's development director. "In Miami there is a small number of individuals who contribute to the arts. Mr. Bronson is among that number." Indeed he's chairman of the ballet's board of trustees. He also sits on MoCA's board. And, as one of the more recent arrivals to Greater Miami's culture club, he is a regular invitee at swank gatherings of deep-pocketed arts patrons.
But Bronson hasn't had much time for soirees lately. He's been too busy launching a glossy fashion magazine called Channel. No doubt he's hoping the publication will achieve the same success as last year's project, Shadow Lounge -- now one of South Beach's most trendy clubs. Opening that Washington Avenue hot spot made him more than just a rich guy; it made him a cool rich guy. Last October Tara Solomon, the Miami Herald's nightlife columnist, gushingly called him "as close to a real-life Bruce Wayne as mortal men can get."
In fact the bachelor is becoming the stuff of gossip columnists' dreams. The walls of his Golden Beach home are decorated with the works of Keith Haring, among others. He drives not only a Ferrari but also an Aston Martin and a Harley-Davidson. And paparazzi regularly catch his grinning visage at various schmoozefests. With the debut of Bronson's magazine scheduled for this month, Bronson is poised to become South Florida's millionaire of the moment.
"I've had a history of getting involved in ventures that were high risk," he told the Miami Daily Business Review in an August 10 front-page story about his magazine. That's a telling quote.
Bronson's time spent in Fort Lauderdale continues to haunt him. To regulators and some of Biltmore's clients, his philanthropy is a crass attempt to buy the credibility he squandered while earning his millions. Biltmore is known across the nation as a rogue company infamous for unscrupulous trading practices. Securities regulators have repeatedly accused Bronson and his company of bilking investors, many of them elderly and retired.
In 1993, a year after Bronson and his partner took over Biltmore, the Securities and Exchange Commission sued him and his company for defrauding investors by selling them worthless stocks, lying about the performances of some securities, and using clients' money to make unauthorized trades. The company paid a $1 million settlement in 1995, and Bronson was suspended from supervising traders for a year. Neither Biltmore nor its president admitted any wrongdoing. Since then the company has suffered additional setbacks. State authorities in Alabama, Arkansas, California, and Indiana have suspended Biltmore's license, negotiated the surrender of the license, or censured the company. Bronson has been named in most of these state actions.
Moreover, a June 16, 1997, article in Forbes magazine listed Biltmore among seven companies in "Wall Street's Hall of Shame." "Here are the worst brokerages in America," the article reports. "If a broker calls you from one of these firms, hang up." Bronson and Biltmore were even featured in charts showing the spread of suspicious brokerages at a 1997 U.S. Senate hearing on securities fraud.
"Biltmore is considered one of the bad boys of all time," says Arkansas Securities Commissioner Mac Dodson, whose office accused Biltmore in 1997 of unethical trading practices. "Biltmore is the classic case of a company that doesn't do what it's supposed to do."
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, whom 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 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 to 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 20 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 control it effectively. 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.
Then in March 1987, a month before his 33rd birthday, Bronson acquired a broker's license, according to the SEC. From 1987 to 1990 he worked at some of the nation's premier brokerages, including Bear, Stearns & Co. and Shearson, Lehman, Hutton. No investor complained about him during those years, according to records of the NASD, which regulates the industry.
In August 1990 Bronson joined a small securities firm in Lake Success, New York, called Stratton Oakmont, which regulators would later term among the most corrupt brokerages in the nation. It was a place where a trader could make a lot of money. Investors first complained about Bronson during his tenure at Stratton. In 1991 one person accused him of unauthorized and unsuitable trading, according to NASD records. He agreed to pay $50,000 but admitted no wrongdoing; such an admission would have jeopardized his dealer's license. A second investor complained that Bronson was culpable of "misrepresentation of fact" while selling securities. He settled that one, too, paying $12,000 without admitting guilt.
At Stratton Oakmont, paying such penalties was apparently part of the cost of business. In a field where enforcement is generally weak and slow, the government reacted with rare severity. Citing Stratton's egregious violations of SEC rules, the feds closed the firm in 1996. The government alleged stock fraud and market manipulation dating to the early '90s. But long before regulators shuttered Stratton, Bronson had migrated to South Florida "because he needed a change," according to Lizzie Grubman, a New York City publicist handling questions for Bronson. He arrived here in 1992.
It was a logical choice. South Florida is fertile ground for the affluent and socially ambitious. The region has a habit of embracing movers and shakers, no questions asked. It has a culture of possibility and big dreams that has allowed some high rollers to dupe the gullible. Take Leonel Martinez, a once-prominent developer who threw money around like Johnny Appleseed. In the '80s Miami named a street after him, the Leomar Parkway. The sign came down after his conviction for drug dealing in 1990. And there's Abel Holtz, a generous, civic-minded banker who gave freely, inspiring Abel Holtz Boulevard. It turned out Holtz gave too freely. He pleaded guilty in 1995 to lying to a grand jury about paying bribes to former Miami Beach Mayor Alex Daoud. A street still bears his name. Then there's the former chairman of the now-defunct CenTrust bank, David Paul, sentenced to an 11-year prison term for bank fraud in 1993. Paul attended high-society functions, sat on the board of the New World Symphony, and loved to show off his art; his collection included a $13 million work by the Flemish painter Peter Paul Rubens hanging in his office.
Loewenstern, a Stratton broker then 30 years old, joined Bronson in South Florida in 1992. The pair bought Biltmore Securities, Inc., a small, three-year-old brokerage house in Fort Lauderdale, for $200,000, according to Nortman. In a year the number of brokers more than tripled to 70 and revenues jumped from $2.9 million to $10.6 million, according to a 1993 Forbes magazine article. After the sale to Bronson and Loewenstern, regulators tracking the spread of investor fraud took to calling Biltmore "the son of Stratton," says Alabama's Securities Commissioner Joe Borg. In fact the pair attracted several Stratton clients. Biltmore also helped sell stock for Stratton. "It's no secret that Elliot Loewenstern knew one of the [Stratton] principals from his youth on Long Island," Nortman says. "They categorically deny there is any surreptitious activity between the companies. Whatever transactions they did were pursuant to the rules and regulations of the industry." Calls to Loewenstern were returned by Nortman.
Another interesting thing happened when Bronson and Loewenstern took over Biltmore. Complaints about the company's trading practices started coming in to the Miami office of the SEC. Until then Biltmore had had a clean record, according to NASD records.
Though Biltmore had a dubious reputation among some regulators and clients, employees prospered -- if they could hack it. The company threw $30,000 Christmas parties and even provided a Lear jet for the top 12 earners to travel to the Caribbean, says Scott Link, a West Palm Beach lawyer who represented several clients in lawsuits against Biltmore. But the psychic toll of this guerrilla outpost of capitalism was high, Link observes: "Based on my interviews, I'd say it was a culture of public humiliation and military-type brainwashing."
(Link wouldn't give details of his clients' past conflicts with Biltmore because of confidentiality agreements. He did describe a new action filed in June on behalf of a retired New York City school principal who claims to have lost $128,000. The client alleges Biltmore traders sold him stock and then refused his directions to sell. The case is pending before the NASD, he says.)
"It doesn't sound like they're accusing him of a crime. It sounds like someone who runs a business wants his people to be more productive," counters Nortman.
"Productive" would be one way to describe Bronson's employees. In August 1992 one Biltmore broker telephoned Robert Flickinger, the Minnesota man who had a fair amount of savings from a veterinary supply company he founded. Flickinger claims to have invested in stocks only once before then. "They come across [as] quite authentic," Flickinger says of Biltmore's brokers. "They tell you this is going to disappear quick and you've got to get in on it. They hang on to you. They don't let you hang up."
According to the lawsuit, two Biltmore brokers contacted him. First they sold him a blue-chip stock that earned some money. Then they started selling him other issues, promising that he could take profits whenever he desired. But when he tried to make withdrawals, he says, the traders blocked him. In one memorable exchange, as found in the SEC suit, broker Marc Siden bought for Flickinger $100,000 of stock in a company called Judicate, saying it was "another good investment." The SEC suit claimed Siden didn't mention that Judicate had lost money the last five years in a row. (Siden, contacted in New York City, declined comment.)
The suit stated Flickinger lost $90,000 on that trade alone. After he saw his losses on a report, Flickinger told Siden to sell his stocks. He even wrote a note: "Dear Marc, I do not wish at this time to make any purchases of stock.... I'll have no money to invest until after October '94."
Siden still bought $81,000 of stock in a company called Out-Takes with Flickinger's money, the suit stated. Flickinger claims to have lost more than $300,000 overall and says he nearly lost his 38-year-old business. He adds that he complained to Biltmore's compliance officer -- an employee who is supposed to ensure that the firm abides by SEC and NASD rules -- "but he was in on it."
Flickinger says he has recovered $90,000 from Biltmore.
"As far as we could tell, [Flickinger's] allegation of unauthorized trading was at most a miscommunication," says Nortman, who adds that Siden had his own lawyer during the SEC proceedings.
Another investor, Doug West, who owns a small injection-molding company in Galesburg, Illinois, claims he was bamboozled in similar fashion. And he blames Bronson and Loewenstern. "There's no question these people were following a carefully scripted plan orchestrated by the top guys," he says. Flickinger, West, and others complained to the Miami office of the SEC, which started looking into Biltmore.
In October 1993 the SEC commemorated Bronson's one-year anniversary in Florida with a federal lawsuit alleging that he, Loewenstern, and six Biltmore traders "engaged in a scheme to defraud investors through fraudulent sales practices and market manipulation" in a "boiler room environment." The SEC listed 25 investors who would testify at trial. "The kinds of things Biltmore was alleged to have done weren't technical violations," says SEC senior trial counsel Christian Bartholomew. "These were serious violations of securities laws."
For a year the case was mired in pretrial maneuvers. The SEC tried twice to prevent Biltmore from conducting initial public offerings of stocks. Both times a judge refused regulators' entreaties.
The government attacks didn't faze Bronson. In November 1994 he bought the beachfront Golden Beach villa with its tiled roof and circular driveway for $1.75 million.
In 1995 the SEC settled the first part of its lawsuit against Biltmore. Bronson, Loewenstern, and their company agreed to pay a $1 million "disgorgement," which, according to Bartholomew and Nortman, is reimbursement to alleged victims for allegedly improper trades. Bronson and Loewenstern each agreed to a one-year suspension from supervising traders. They also consented to allowing a consultant to review Biltmore's business practices. An auditor was then assigned to monitor the company. The audits, held every six months, will continue into 1999.
The day after Biltmore settled, Bronson got up on a chair in front of his traders and tossed dozens of $100 bills into the air, according to Link. As the bills fluttered down, "he told them, 'that's how much the [settlement] means to me,'" Link says, reading from notes he took in an interview with a former Biltmore trader. He won't give the trader's name.
Biltmore settled because fighting the SEC suit would have been too costly, Nortman says. "Neither Biltmore nor Mr. Bronson nor Mr. Loewenstern denied the allegation or admitted doing anything wrong."
Bronson, who suddenly had time on his hands, became more involved in Miami society. He donated hundreds of thousands of dollars to the ballet and joined the board in 1995. He even sponsored performances, says the ballet's Susan Fox. In 1996 Bronson met with directors of MoCA, an 18-year-old, cutting-edge museum that expanded that year to a sleek building in North Miami. "He said he wanted to help," says Bonnie Clearwater, then the curator and now director. He was straightforward and humble, she recalls. After Clearwater told him about a planned exhibit of Mexican modernism, Bronson considered the idea for a week and then said he'd fund the show. "It was a substantial [gift]," Clearwater says. "About $100,000."
Bronson learned about contemporary art through the museum, then started buying works by some of the most well known contemporary painters such as Jean-Michel Basquiat, Keith Haring, and Kenny Scharf. When MoCA held a show of Haring's work, Bronson loaned a painting from his personal collection. "He seems to have a genuine love for art. He's very willing to back an artist and support an exhibition," says Clearwater, who knows little of Bronson's vocation. "He has a relatively new collection. It's amazing how quickly his eye developed."
On Miami Beach he recently contributed $10,000 to help construct the headquarters of the Police Athletic League (PAL), then gave $1000 gifts for Thanksgiving food drives and other events. "Everything I've heard about him is good," says Bernie Winer, PAL director. "He's been very good to us."
It was around this time that Bronson approached Jerry Powers, publisher and cofounder of Ocean Drive magazine, with a business proposition. Bronson invited Powers to Biltmore's Fort Lauderdale office. "It was like seeing the ocean for the first time," Powers says. Filling the entire floor of the vaultlike trading room were more than 100 desks, Powers recalls. There were no partitions. A person sat at each desk furiously dialing the telephone.
As Bronson led Powers through the room, "he explained that he would take [Ocean Drive] public and make it worth a ton of money. When I asked him how, he said, 'Leave that to me, I can take a telephone booth public,'" says Powers. "I declined his offer." His magazine will now be in competition with Channel.
In 1997 the second phase of the SEC suit against Biltmore came to a close. Traders who had continued fighting the SEC settled. The regulators permanently barred four Biltmore brokers from the business. Siden was barred for a year. They were fined between $75,000 and $100,000 each and ordered to pay a combined restitution of $657,500. By then they had all left Biltmore.
That marked the beginning of a bad year for the company and its president:
*In April 1997 Indiana's secretary of state accused Biltmore of dishonest and unethical sales practices as well as violating antifraud provisions of the state's securities laws. Biltmore agreed to pay $175,000 in "fines and costs," according to the secretary of state's office, and reimburse five investors more than $495,000. Indiana barred Biltmore from selling stocks other than those listed on a major stock exchange. "There was no admission of doing anything wrong," Nortman says.
*In July Arkansas officials ordered Biltmore to pay a $25,000 "censure" and demanded to review the independent auditor's reports from the SEC settlement. Nortman: "That is not a fine."
*In October the California Department of Corporations alleged that Biltmore and two of its traders engaged in "dishonest" and "unethical" business practices. In July Biltmore, Bronson, and Loewenstern surrendered their licenses to do business in the state. Nortman points out, "It's just an agreement. There was no admission of wrongdoing."
*In December the Alabama Securities Commission suspended Biltmore indefinitely from doing business in the state while it investigates the company. The reason: failure to produce requested documents. "That is utterly bogus," Nortman says. "We requested a hearing to resolve this."
Nortman contends that nearly all of Biltmore's recent troubles stem from the SEC lawsuit. States are allowed to cite actions in other states as reasons to penalize a firm. That's a shame, he continues. "Whatever errors may have been made in the past, it's like breaking a bone, because when the bone heals it's a lot stronger. Nobody has done anything but make allegations against Biltmore, and allegations are proof of nothing."
But the SEC's Bartholomew has a different take. "It's fair to say that the consultant and auditor have both raised serious questions about the way Biltmore continues to do business," he says. "And Biltmore needs to address them."
Inside the cavernous Shadow Lounge on South Beach, the DJ is spinning vinyl in a booth high above the dance floor. A throng of the young and fabulous swivel and throb in unison. The stainless steel bar stretches down the length of one wall; bottles of booze on top glow like lava lamps. Dade Sokoloff, the general manager, is studying the crowd with a practiced eye to make sure no problem arises. Everything is going smoothly, so he turns his attention to an annoyance: a New Times reporter's questions about Bronson. He suspects an upcoming story about his friend and boss will be negative. "One thing this is going to do is discourage people from getting involved to do good things in the future," he says glumly.
Bronson tapped Sokoloff and veteran Beach promoter Gerry Kelly to launch the club last December. Almost from the beginning, it's been a hit, thanks largely to Bronson's infusion of more than a million dollars. The success is a testament to Bronson's skills as a businessman, says Sokoloff. Though the manager runs the place day to day, Bronson visits regularly to review details and finances. Paparazzi often catch Bronson here. "Don't believe all the shit you hear," Sokoloff continues. "People love to slam people who are doing well. So many people come to South Beach and are leeches, and here's a guy who comes here and does all this for the community. I tell you, everybody should give back as much to the community."
Sokoloff is referring to charity events Bronson has hosted at Shadow Lounge to fight AIDS, cancer, and cystic fibrosis. When told about the owner's troubled regulatory history, Sokoloff replies, "Do I know about that? No. Do I care? No."
Sokoloff met Bronson about five years ago, soon after the broker moved to South Florida. Even then Bronson was hoping to become involved in some kind of media project, says Sokoloff, who once worked at Ocean Drive magazine. "His passion has always been in publishing," Sokoloff says. "Doing this magazine is his dream. It's something he's always wanted to do."
After announcing Channel's launch, Bronson basked in a round of congratulatory articles. Publishing, he told the Herald is "a love -- and I also see an opportunity to make a lot of money." He told the Daily Business Review he would hire good people and let them run the magazine. "I do my best to stay out of the way," he said.
Even as Bronson expands his South Florida empire, stock analyst Thomas Benson has established a Web page dedicated exclusively to Biltmore (www.stockbroker-analysis.com/bilt.html). It includes charts tracking the performances of several stocks that Benson says the company is peddling. They all nose-dive. "I don't think anybody who takes a look at that Web page would do business with Biltmore," comments Benson, who says he set up the site as a public service.
Biltmore, meanwhile, is also doing business under the name Midas Investment Group. Bronson has virtually retired, says Grubman. He has ceased involvement in the firm's day-to-day business to concentrate on other projects like Shadow Lounge, Channel, charity events, and board memberships. But those activities don't impress Biltmore's detractors. Told of Bronson's philanthropy, one regulator joked: "Let me check and see if they're paid up on their settlement. I might try and come out there to get some of that." Adds former investor West: "He's trying to buy a whitewash. He's got his money. Now he wants something different. He wants respectability.
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