AN XTRA CONNECTION
By CHRISTOPHER BYRON
July 28, 2003 -- INSURANCE executive Robert Steinberg, the millionaire brother of Wall Street moneyman Saul Steinberg, has surfaced as the newest name in the Lancer hedge fund scandal. In this scandal, nearly $500 million of cash money has vanished, even as a federal investigation in Miami has spread to Dallas, New York and Beverly Hills. Meanwhile, signs of a cover-up have begun to emerge involving two other players in the affair: Bank of America Securities, and the PricewaterhouseCoopers accounting firm.
Notables ranging from Britney Spears to financier Ronald Perelman to the former head of Sotheby's International, Alfred Taubman, have already been linked to the scandal. They've turned up either as investors in the Lancer funds (Taubman and Spears) or, in Perelman's case, through a Lancer investment in a Perelman-controlled biotech startup.
Now Steinberg, who once worked as president and chief operating officer of his brother Saul's Reliance Group Holding Co., gets added to the list.
Robert Steinberg is the chairman and CEO of a Hasbrouck Heights, N.J., health care provider called XtraCard Corp. Documents reviewed by The Post show XtraCard to be the biggest single investment in the Lancer portfolios, amounting to more than 22 percent of the stated value of all the Lancer funds combined at the start of this year.
The Lancer Group, headquartered in posh Manhattan digs on Park Avenue, was shut down three weeks ago by federal regulators. Action by the Securities and Exchange Commission followed disclosures by the Post that many of Lancer's investments involved penny stocks controlled by white-collar felons, regulatory scofflaws and, in at least one case, a stock promoter connected to organized crime.
Acting on evidence first brought to light by The Post, the Securities and Exchange Commission is charging that the Lancer Group's investments, valued last December at more than $1 billion, consist almost entirely of such worthless penny stocks as XtraCard.
The SEC alleges that Lauer and his funds manipulated the prices of these worthless stocks to create the illusion of huge gains in the funds' portfolios.
At year-end 2002, the XtraCard shares and warrants alone were being valued on the Lancer books at close to $250 million, even though XtraCard itself had full-year revenues of barely $152,000, and less than $520,000 of balance sheet cash.
STEINBERG has not been charged or named in the SEC complaint. Yet letters and other documents in the case show that he was in regular and frequent contact with Lancer's managing director, a former Wall Street stock analyst named Michael Lauer. The contacts typically involved Steinberg's seemingly ceaseless search for money to keep XtraCard from collapse.
Steinberg declined to comment for this story.
XtraCard Corp. is one of numerous Lancer investments created by a network of penny-stock promoters associated with Lauer and operating out of an office at 1900 Corporate Blvd. in Boca Raton, Fla.
XtraCard itself has never published financial statements, audited or otherwise, so it has been impossible for would-be investors to know just what a share of its stock is actually worth.
Most of the other stocks in Lancer's portfolios are equally murky. Yet few investors seemed to care one way or another when stock prices were rising in the bull market of the 1990s, sending the value of shares in the various Lancer funds soaring as well.
Even Bank of America Securities, the brokerage firm that maintained Lancer's trading records, seems to have been indifferent to Lauer's investment choices. The nonchalant attitude continued even after the stock market collapsed in the spring of 2000 and Lancer's holdings magically kept rising anyway.
One source in the case told The Post last week that Bank of America was so eager to have Lancer as a client, it agreed not to question or scrutinize the group's actual portfolio holdings, and it even agreed to limit access to the portfolios through a password that was known only to a single top official in San Francisco.
Moreover, sources familiar with Bank of America's internal workings as a hedge-funds custodian say more than $34 million worth of private loans showing on the Lancer monthly statements were likely to have been entered into the bank's computers by B of A personnel on the basis of little more than verbal or faxed instructions from Lancer.
Bank of America was thus in a tough spot in October 2002, when a group of officials from Morgan Stanley & Co., which had invested in the Lancer operation, asked the bank to produce a list of Lancer's actual portfolio holdings.
According to court papers in the matter, the officials wanted to resolve their own growing concerns about the quality of the Lancer holdings. But the bank refused to provide the list, claiming Lauer would not allow them to do so.
Lancer's auditors at PricewaterhouseCoopers are also on the spot. PricewaterhouseCoopers audited the books of Lancer's flagship "Offshore Fund" for both 2000 and 2001, and it is hard to see how they could not have been aware of the wildly improbable valuations that characterized the portfolio.
One portfolio holding, of a company bearing the name SMX Corp., soared from 2 cents to $26 in just seven months during 2002 - turning Lancer's initial $378,000 investment into $150 million. Another Lancer holding, Nu-D-Zine Inc., was valued by Lauer at $175 million in the December 2002 portfolio, though the company had no revenues or business activities, and its only asset was $350,000 in cash.
PricewaterhouseCoopers' most recent (and final) audit, for 2001, shows plainly enough that the auditors knew that what Lauer was doing was irregular, to say the least. Fine print in the audit reveals the auditors had decided to rely entirely on Lauer's own judgment as to what the securities in the portfolio were actually worth - the same trusting attitude Bank of America had shown as well.
THE apparent unwillingness of the two institutions to examine what Lauer was really up to enabled Lauer to mark up such penny stocks as XtraCard, until it appeared on Lancer's portfolios at a value that approached a quarter of a billion dollars.
XtraCard operates out of an office at 777 Terrace Ave. in Hasbrouck Heights, N.J., but corporate filings also show a second address connected to the company. It is 1900 Corporate Blvd. in Boca Raton - the same address used by at least five other penny stocks in the Lancer portfolio, including Nu-D-Zine and SMX Corp.
Court documents in the case show an incredible web of non-arms-length transactions among all these Lauer-controlled, Boca-based stocks, as well as with other penny stocks in the portfolios.
The names of more than three dozen additional penny stocks, from other offices and other promoters, also appear on Lancer's final portfolio from the court file. In one case, the same stock seems to be entered twice, with different names and different trading symbols. Which is the correct one - or whether either is - is unclear.
Getting these portfolios sorted out, and figuring out which deals were legitimate and which were not, may occupy investigators for years. Groups of penny-stock promoters all over North America, and even in Europe and Asia, supplied Lauer with the penny-stock trash that wound up filling his portfolios. One such individual, a mob-connected white-collar felon named Abe Salaman from Cherry Hill, N.J., alone pushed more than half a dozen worthless penny stocks into the Lancer portfolios.
Now that the Lancer game has run its course, and as the great bull market of the 1990s fades into history, all that remains is the hunt to find where close to $500 million of investor money in the various Lancer funds actually went. The case continues.
* Please send e-mail to: cbyron@nypost.com |
