Dow Jones InteractiveCan disgraced broker be Wall Street's white knight?
(A New Beginning, or Just Deja Vu?).(Ross Mandell seeks brokers for new firm, Sky
Capital Holdings)(Brief Article)
07/29/2002
Wall Street Letter
9
Copyright 2002 Gale Group Inc. All rights reserved. COPYRIGHT 2002 Euromoney
Institutional Investor PLC/Tel: +44(0)207-779-8999/www.wallstreetletter.com
The CEO of Sky Capital Holdings, Ross Mandell, is offering something unusual on
Wall Street these days: job openings at a new, confident firm. But he himself is
having difficulties shrugging off a checkered past acquired in the hedonistic
1980s.
During the late 1980s and early 1990s, Mandell worked at Oppenheimer & Co. and
Prudential-Bache Securities as well as smaller now-defunct firms such as D.
Blech & Co. and Steve Andrew & Co., where he had a number of run-ins with the
National Association of Securities Dealers. According to the regulatory body,
Mandell has paid out over $100,000 for upwards of 10 arbitration settlements and
awards. The majority of these claims involve the mishandling of clients
accounts. The most substantial payment, a $75,000 settlement in 1997, was for
alleged "misrepresentation, unauthorized trading and unsuitable investments."
Also, there was a six-month suspension in 1995 imposed by the NASD for previous
allegations of churning. But that was then and this is now, says Mandell, who
explains that his conflicts came during a time when he was addicted to alcohol
and cocaine-the diet of choice for many brokers in that era. Since 1990 he has
been clean and sober, he said.
Now, Mandell is back and at the helm of a new enterprise, which he and his
associates see as an attractive alternative to the bloated dowagers of Wall
Street. The new full-service investment bank and brokerage firm, which is based
in London and New York, is going full steam ahead. With the management and
oversight now in place, the firm is going on an aggressive hiring spree. Michael
Recca, a former investment banker and the firm's new president, said Sky Capital
expects to hire 100 to 200 brokers over the next year. On the European front,
Recca said that an acquisition is likely, though the firm is also looking at
expansion through hiring. Already, the firm is talking with groups in Germany,
Switzerland and Italy.
"We are a more traditional, more personalized alternative to the major financial
institutions," Mandell Boasted over lunch at Sky Capitals' New York headquarters
at 110 Wall Street. He proposes that what investors want is a return to the
small, intimate firms of decades ago.
What Mandell and his associates are not suggesting is that anything needs to be
changed in the overall structure of financial services firms. On the subject of
compensation for brokers and analysts, for example, Mandell sees no need for
change. "I don't believe it is a compensation issue, it is a management issue,"
he said.
For Mandell and Recca, the culprits are the analysts and irresponsible CEOs who
went wild during the tech bubble. The fact that so many misdeeds are being
shaken out now is proof that the system does indeed work if given enough time to
right itself.
Critics Caution
But critics argue that it was exactly the same system that allowed Mandell and
his colleagues, many of whose suspect behavior never reached arbitration courts,
to make out like bandits in the bad old days of the 1980s. They point out that,
given the black marks on Mandell's NASD record, he would be unlikely to find a
firm willing to hire him. This is especially troubling since the prospectus for
Sky Capital's IPO stares that: "The continued involvement of Ross Mandell is of
key importance to the development and growth of the Company's activities. The
absence of Ross Mandell would adversely affect the Company's ability to
implement its business plan."
Mandell is proud of the turnaround he has made in his life, and believes that
through paying his settlements and awards he has demonstrated his willingness to
make amends. A compliance officer reporting directly to the president will
supervise all of the firm's brokers, including Mandell. Yet, for investors, it
remains essentially an act of faith that Mandell will not fall off the wagon or
that other brokers at the firm won't fall prey to temptations when times are
good again-or that if they do, their actions will be quickly detected.
Such criticism has not been a deterrent to investors. On July 17, the very day
that Robertson Stephenson closed its doors, Sky Capital Holdings started trading
on the London Stock Exchange, ending the day up 21%. Even in the current soft
market, it has been trading well ever since.
"It is precisely because firms like Robertson Stephens are gone that there is an
opportunity for us," said Recca. Sky Capital is betting on the fact that people
have become disillusioned with the large Wall Street players and are eager to
embrace a fresh new face. In particular, Mandell said the firm believes that
major institutions might be more willing to divorce themselves from long
standing brokerage relationships.
As others buckle under the onslaught of bad news from the markets, Recca and
Mandell can hardly contain their glee. "I was outside my house the other day and
one of my neighbors asked me why I was looking so cheerful. He asked, 'Aren't
you on Wall Street?"' Mandell chuckled. It remains to be seen if Sky Capital can
offer a solution to Wall Street's woes or if it is just another Street
opportunist doomed to be stymied by the rampant suspicion now pervading the
investment community.
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