Somebody PLEASE tell me about those honest Democrats(both of them)
Wednesday June 6, 7:03 pm Eastern Time
SmartMoney.com - On the Street
A SmartMoney.com Exclusive Investigation: More Questions About Torricelli's Finances
By Matthew Goldstein
FOR MUCH OF his political career, U.S. Sen. Robert Torricelli has been dogged by charges that friends and political supporters have gone out of their way to do special favors for him.
The latest allegation making headlines is that the powerful New Jersey Democrat improperly accepted gifts — including 10 Italian suits, a Rolex watch and gold cufflinks — from a New Jersey businessman who has already pleaded guilty to making illegal campaign contributions to Torricelli's 1996 U.S. Senate campaign. The gifts from David Chang are believed to be one of the main things federal prosecutors are focusing on in a wide-ranging investigation into Torricelli's fund raising and personal finances. Prosecutors are trying to determine whether the gifts were intended to secure Torricelli's help in business negotiations Chang was conducting with the South Korean government.
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But before the stories about gold jewelry and hand-tailored suits started making front-page news, much of the political intrigue surrounding ``the Torch'' (as he's known in political circles) concerned his apparent knack for getting access to lucrative stock deals. An example is the 1992 initial public offering for a New Jersey savings bank that netted Torricelli, then a U.S. congressman, a $144,000 profit. Torricelli's stock-market deals provoked so much outrage that he put his investments in a blind trust in 1994 and tapped New York investment banker Matthew Gohd to manage his portfolio.
Gohd, a major contributor to the Democratic National Committee and a golf buddy of former President Clinton's, ran the blind trust until Torricelli dissolved it in 1998. And ever since, it seems the investments made by Gohd on behalf of the blind trust have been sparking controversy. Over the past two years a slew of news organizations — including The Star Ledger, The Record, of Hackensack, N.J., Crain's New York Business and the New York Times — have raised questions about just how blind Torricelli really was to some of the investment decisions being made by Gohd. (For more on Gohd and the blind-trust controversies, see story.)
Now, documents reviewed by SmartMoney.com have raised questions of possible preferential treatment for the Torricelli trust by Gohd and a small hedge fund he formerly managed called Porpoise Investors. The Torricelli trust was one of about two-dozen investors in the Porpoise fund — a $13 million hedge fund that Gohd ran from 1993 to 1998. Other notable investors included Torricelli's former girlfriend Bianca Jagger, the human-rights activist and ex-wife of Rolling Stones singer Mick Jagger; Laura Burrows-Jackson, a Baltimore philanthropist; and Par Ridder, son of the chief executive officer of the Knight Ridder newspaper chain. But the Porpoise fund, which specialized in speculative stocks, quickly floundered, and by late 1995 many investors were simply looking to bail out.
In fact, it appears many investors lost money in Porpoise — in some cases, as much as 95% of their original investments. But that may not have been the case for the Torricelli trust and a few other select investors. Based on interviews with people familiar with Porpoise's operation, allegations contained in several lawsuits and arbitration cases involving Porpoise, and other documents reviewed by Smartmoney.com, it appears the Torricelli trust may have emerged from the Porpoise fund with little or no losses at all, and may even have turned a profit. A Porpoise financial record summarizing the fund's operation, which Smartmoney.com has reviewed, shows the Porpoise fund made two disbursements, listed as loans, to the Torricelli trust. The first loan was for $75,000 and was made in February 1995. The second loan occurred in May 1996 and was for $50,000. There's no indication in the financial record that any interest was charged on the loans, nor that the loans were repaid.
The $125,000 combined loan amount is greater than the sum invested by the Torricelli trust in the Porpoise fund. Torricelli, according to the financial document and interviews with several people, began investing in the Porpoise fund in 1993, nearly a full year before Gohd was picked to run the blind trust. Ultimately, Torricelli's capital contribution to Porpoise grew from an initial $25,000 to $100,000. Meanwhile, the blind trust reached its maximum value in 1995 — when it ranged between $250,000 and $500,000, according to Torricelli's congressional financial-disclosure statements. The trust's opening balance in 1994 was $139,000.
Torricelli's office, as has been often the case whenever questions arise about the now-defunct blind trust, did not have much to say about the Porpoise loans. Torricelli's official stance is that he had no knowledge of any of the investment decisions made by Gohd during the time the blind trust was in existence. Says Dale Leibach, a spokesman for Torricelli: ``It was set up as a blind trust and the information about it was not available'' to Torricelli. Gohd, meanwhile, didn't return several phone calls to his office, and his attorney, Lawrence Bader, declined to comment. Robert Mittman, a New York lawyer whose firm defended Gohd, Porpoise and Whale Securities (the New York investment firm where Gohd works) in the arbitrations and lawsuits, also declined to comment.
It's not known whether the dealings between the Porpoise fund and the Torricelli trust are a subject of the ongoing federal inquiry into Torricelli's personal finances and fund raising. A spokesman for Mary Jo White, U.S. Attorney for the Southern District of New York, whose office is overseeing the investigation, declined to comment. But several people say federal investigators did make inquiries more than a year ago about the Porpoise fund and they questioned at least one associate who had worked with Gohd on the fund. The associate, who no longer works for Gohd, declined to comment to SmartMoney.com.
What is known, however, is that over the past 18 months Gohd has settled three separate arbitration claims stemming from the demise of Porpoise. In each case the disgruntled investors made allegations of ``preferential treatment'' for a few unnamed Porpoise investors. To settle the three arbitrations, lawyers for Gohd and Porpoise agreed to a pay a total of $535,000 in damages, according to records on file with the National Association of Securities Dealers. In each instance, Gohd denied any allegations of wrongdoing and noted that he personally did not contribute any money toward the settlements. The claims were paid by checks drawn by Whale, where Gohd has worked since 1989 — first as a managing director and now as co-chairman. (In late April, Whale renamed itself BlueStone Capital.)
Since securities arbitration cases are normally private affairs, it's difficult to know what evidence was produced during those proceedings. Moreover, the disgruntled Porpoise customers and their attorneys agreed not to discuss their claims and allegations as part of the terms of the settlements.
Some aspects of the dispute, however, were given a more thorough airing in lawsuits filed prior to the arbitration proceedings. The lawsuits filed by Par Ridder and Laura Burrows-Jackson ultimately were dismissed in their early stages because the courts ruled that the investors were bound first to arbitrate any claims they might have against Porpoise and Gohd. And while none of the lawsuits mentioned the Torricelli trust, the court papers strongly suggest that some Porpoise investors may have gotten preferential treatment. A lawsuit filed by Burrows-Jackson in federal district court in Maryland in 1997 alleged that Gohd made ``secret agreements'' with a few Porpoise investors that allowed them to withdraw from the fund before anyone else — an action that allegedly minimized those investors' losses at the expense of others. Burrows-Jackson's suit claimed Gohd and Porpoise ``gave preferential treatment to other partner's demands for return of the investments...to the detriment of Burrows[-Jackson].''
A lawsuit filed by Ridder in federal district court in Manhattan in 1999 made similar allegations of potential favoritism. Instead of liquidating the Porpoise fund on a pro-rata basis as Gohd was required to do under the terms of the fund's agreement, the lawsuit claims Porpoise ``secretly gave money back to favorite persons.'' It alleges, for example, that Gohd and Porpoise ``made loans to a friend in the amount of $125,000.'' Ridder, along with Burrows-Jackson, argued that Gohd repeatedly rebuffed their attempts to withdraw from the fund in late 1995. So by the time Porpoise finally sent Ridder a disbursement check in 1997 to close out his account, his original $100,000 investment had been whittled down to less than $5,000. Ridder got $55,000 in his settlement, which was finalized in February. Burrows-Jackson, whose losses were even greater, settled for $200,000. In the third arbitration, the Borggreve Family Limited Partnership settled its claims for $280,000.
So why did Porpoise perform so badly? The lawsuits all allege that many of the stocks Porpoise invested in were those of companies taken public by Whale and whose share prices were slipping fast. The investors alleged that Gohd unsuccessfully used Porpoise to prop up the prices of these ailing Whale stocks by buying shares in them on the open market. A falling share price for a stock underwritten by Whale is not all that surprising. Of the nearly three dozen small companies Whale has taken public since 1994, roughly two-thirds either have had their stocks delisted by Nasdaq stock-market officials, or have seen their stock prices drop well below their initial-offering prices.
It should be noted, however, that not all the investors in Porpoise are angry with Gohd. Gary Shemano, president of the the Shemano Group, a San Francisco-based investment firm, says he wasn't aware that the Torricelli trust was even an investor in Porpoise, but he finds it hard to believe that Gohd would have given preferential treatment to any investor — including the senator. Shemano says he'd be ``shocked'' to find out Gohd had done anything improper, but admitted he was surprised that Gohd and Whale had agreed to settle all the arbitration claims. Shemano says he lost most of his initial investment in Porpoise and he suspects most others did too. But he considers his losses as part of the risk of betting on speculative stocks.
The irony for Torricelli, of course, is that the reason he'd established the blind trust back in 1994 was to prevent this very kind of criticism from coming up in the first place. But with each passing year, it seems the questions surrounding the now-defunct trust and Gohd's management of it are only multiplying.
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