In his heyday, back in the late 1990s, Alan Bond appeared regularly on Wall Street Week with Louis Rukeyser, where he earned a reputation as a smart, insightful money manager.
By Rich Blake
August 2001
Institutional Investor Magazine
He was one of the rare African-American faces on the popular PBS program, just as he is one of the very few African-Americans to rise to the upper echelons of the institutional asset management business - or finance, for that matter.
At its peak in 1999, Bond’s firm, now known as Albriond Capital Management, claimed 25 pension clients, including the transit authorities of Washington, D.C., and southeastern Pennsylvania and the retirement fund for the National Basketball Association. Total assets under management that year: $600 million.
Today Alan Brian Bond is known for quite a different reason. Indicted for conspiracy to commit securities fraud in a kickback scheme, Bond goes to trial in U.S. District Court in Manhattan in November. The 40-year-old Bond also faces civil charges by the Securities and Exchange Commission for the same alleged wrongdoing. Federal prosecutors argue that between 1993 and 1998 Bond skimmed nearly $7 million from his clients, illegally pocketing a substantial share of inflated brokerage commissions that his clients unwittingly paid.
The indictment states that Bond struck a deal with a broker, Robert Spruill, in which Spruill’s brokerage firm would wildly mark up the commissions on Bond’s trades. Although most institutional trades cost about 6 cents a share, Bond’s alleged co-conspirator, Spruill, marked up trades to 30 cents and, on a few occasions, 52 cents. Allegedly, Spruill, 52, then kicked back to Bond 70 or 80 percent of that commission revenue, which was sometimes wired to bank accounts of a dummy corporation. In several instances, the SEC complaint states, they were used to directly pay Bond’s personal American Express bills, which in one month hit $476,000.
“It’s an extremely serious charge,” says Clifford Hyatt, a lawyer in the division of enforcement of the SEC’s Los Angeles office, which began an investigation of Bond’s suspicious trading in 1998. “A kickback case involving a big-time money manager with big pension clients - I can’t think of too many of those of late.”
“What Alan Bond stands accused of is your textbook commission-conversion scheme,” explains Edward Siedle, a former SEC attorney who now owns Benchmark Financial Services, an investment advisory and brokerage firm in Lighthouse Point, Florida. “This kind of high-profile case involving large pension funds might come along about once every three or four years. It’s a serious charge, no question. And the reality is that for every one that gets brought to light, there are another ten that don’t.”
Bond, who declined repeated requests for interviews, insists that he will be vindicated in court. Says Bond’s attorney, Theodore Wells, in a written statement, “Mr. Bond maintains his innocence and intends to defend himself vigorously.” Wells, the high-powered defense lawyer who helped former Clinton agriculture secretary Michael Espy win an acquittal on charges that he accepted illegal gifts from lobbyists, declined further comment on the Bond case. Wells also represents Democratic Senator Robert Torricelli of New Jersey, who has been the subject of a four-year federal investigation into charges that he accepted illegal campaign donations.
Although Bond proclaims his innocence, his business and reputation have suffered badly. Nearly all of his clients have deserted him, and assets under management at his firm have plunged to $130 million. Bond continues to manage money for at least two institutions: the $18 billion Ohio Bureau of Workers’ Compensation and the $30 million Old Dominion Transit Employees Disability & Retirement Allowance Plan in Richmond, Virginia. They defend him.
“Nothing’s been proven, and we are standing by Mr. Bond,” says Ohio Bureau CIO Robert Cowman. “Bond is a class act, and he has done a good job for us,” adds Fred Ziegler, head of external investment managers at the Ohio fund. “Until there is something more than an indictment, we owe it to the man to give him his day in court.”
Still, the case against Bond strengthened in June 2000, when Bond’s alleged co-conspirator Spruill pleaded guilty in federal court to making illegal payments to Bond. Spruill, the government’s star witness against Bond, awaits criminal sentencing sometime after he testifies in the Bond case.
Someone familiar with the case speculates that Bond’s attorneys will argue in the jury trial that Bond acted within the framework of a purely legitimate soft dollar brokerage arrangement that funneled money into a legitimate business partnership with Spruill. “All Bond did was grab a piece of the commissions -he didn’t actually steal any fund assets,” says one law enforcement source. “Even if the government proves its case, the defense will ask the jury, ‘Do you really think he deserves to go to jail?’”
Until his world came crashing down with the indictment, Bond was the hero of a classic American success story. Born in 1961, he graduated from Jamaica High School in the New York City borough of Queens. Bond went on to Dartmouth College, where he received his BA in economics in 1983. Four years later he received an MBA in finance from Harvard Business School.
“He was a quiet, decent guy, and he kept to himself,” says Harvard classmate William Wheeler, now chief financial officer for institutional business at Metropolitan Life Insurance Co. Married in 1984, Bond and his wife lived off campus. Sheila Bond now works as a plastic surgeon in Upper Montclair, New Jersey.
Bond arrived on Wall Street in July 1987, taking a position as an associate investment banker at Goldman, Sachs & Co. Two years later he joined WR Lazard & Co., the largest Black-owned investment firm in the U.S., as an equity portfolio manager.
Not long after Bond joined the firm, he started appearing as one of the investment pros in The Wall Street Journal’s widely read pros versus dartboard stock-picking contests. In five appearances between 1989 and 1991, Bond won the contest twice and placed second in his three other tries.
In September 1991, when he was just 29, Bond left WR Lazard to open his own firm. He took as his partners John and Ernesta Procope, the prominent Black owners of insurer EG Bowman Co. The Procopes put up capital in exchange for a 36 percent stake in the firm, known as Bond, Procope Capital Management. They acted as silent partners, delegating all decisions to Bond. Bond’s other partners: Harrison Goldin, a former New York City comptroller, and arbitrage heavyweights George Baker and Richard Nye. Goldin, Baker and Nye owned a 34 percent stake in the firm. Bond reportedly put up no capital, but in exchange for his services, he received a 30 percent stake in annual profits. (Goldin notes that he sold his stake in Bond Procope several years ago; he declines further comment on the Bond case.)
Bond had been in business for only a few months when several of his former clients at WR Lazard transferred their portfolios to his new firm. Within two years Bond claimed $50 million in assets under management.
Prosecutors say that at some point in 1993, Bond entered into a soft dollar arrangement with now-defunct New York City brokerage firm Brenner Securities Corp.; Howard Brenner, a former president of Drexel Burnham Lambert, owned a controlling interest in the firm.
Bond made his connection to Brenner through broker Spruill, who at 6-foot-5 was known to some as “Big Bob.” Spruill joined Brenner after a stint at WR Lazard; they were both at the company when Bond was there managing money from 1989 until 1991. According to the indictment, Bond agreed to direct trades to Brenner Securities. In exchange, the brokerage would keep 30 percent of the commission revenue and set aside 70 percent as a soft dollar credit for Bond’s clients; legally, those credits could only be used by Bond to purchase investment-related products and services.
By July 1993 Bond allegedly had began marking up the commissions to grossly inflated values - often five times the institutional average of 6 cents a trade. Authorities believe that between late 1993 and the end of 1996, Bond diverted most of the soft dollar credits to himself, submitting tens of thousands of dollars in credit card receipts that he claimed were business expenses but authorities now insist were purely personal.
In the late ‘90s, says a well-placed federal investigator, the firm’s profits totaled between $1 million and $2 million a year. Bond reportedly took home a “couple of hundred thousand” in salary, as well as his 30 percent share of the firm’s profits. In 1995, with assets of nearly $400 million, Bond’s portfolio finished the year up 27.6 percent, though that lagged the 37.6 percent return for the Standard & Poor’s 500 index. In 1995 he became a frequent guest on Wall Street Week.
In July 1996 Spruill quit Brenner and a month later joined Lintz Glover White & Co., a Sherman Oaks, California, brokerage firm. Co-founder Kenneth Glover had been a senior executive vice president at WR Lazard. According to Glover, he sold out in 1996, before Spruill came to work for the firm.
In his deal with Brenner Securities, prosecutors argue, Bond essentially abused a soft dollar arrangement. But with Lintz Glover, there was allegedly no pretense of a soft dollar deal - there was not even a soft dollar account established for Bond’s clients with Lintz Glover. Instead, federal authorities say, Lintz Glover paid commissions from Bond’s trading directly to a private corporation in Newark, New Jersey, called Satchmo, owned and controlled by Spruill. Satchmo then made wire transfers to Bond’s personal account at U.S. Trust Co. in New York.
Using kicked-back money to finance what the SEC complaint describes as “an extremely lavish personal lifestyle,” Bond allegedly bought about 75 vintage cars, including a 1956 Ford Thunderbird. Between July 1996 and January 1998, according to both the criminal indictment and SEC complaints, Bond and his broker shared about $4.2 million in commissions. Bond reportedly pocketed about $2.8 million of that total, while Spruill took the rest.
A routine SEC examination of Lintz Glover trading activity in 1997 proved immediately suspicious. Why was 95 percent of the brokerage’s commission revenue coming from one small East Coast money manager? Examiners determined that a single broker at Lintz Glover was executing most of the trades. Some quick cross-checks revealed that Bond and Spruill had been colleagues at WR Lazard.
By December 1997 SEC attorneys had referred the Bond investigation to the agency’s division of enforcement.
Around this time, firm chairman George Lintz apparently questioned Spruill about his trading activity. In December Spruill quit the firm and in January 1998 signed on as a broker with Value Investing Partners in Westport, Connecticut. The government says that Bond then stopped trading with Lintz Glover and followed Spruill to VIP. (Reached at home in Newark, Spruill had no comment.)
Earlier this year the National Association of Securities Dealers banned Lintz from acting in a supervisory role in the securities industry. He has faced no criminal charges. Glover, who now works as chief administrative officer for Maryland’s Prince George’s County, was never charged with any wrongdoing.
Once Spruill arrived at VIP, prosecutors argue, Bond and he agreed that Spruill would create a new dummy corporation called S&B Capital. In 1998 VIP paid S&B more than $5 million in commissions, of which at least $3.4 million was funneled to Bond through the dummy corporation, according to the criminal and regulatory complaints. The last payments from Spruill to Bond were alleged to have been made in November 1998.
Even as Bond was allegedly orchestrating his kickback schemes in 1997 and 1998, he turned in two solid years of portfolio performance and asset growth. His large-cap growth portfolio returned 25.7 percent in 1997, compared with 33.4 percent for the S&P; in 1998, bolstered by technology holdings, it had its best year ever, returning 39 percent, versus 28.5 percent for the S&P. Assets grew from $420 million at the end of 1996 to $588 million at the end of 1998, when Bond bought out his partners. That year he boasted 25 pension fund clients.
At some point in either late 1998 or early 1999, Bond learned that he was the subject of an investigation by the the U.S. attorney in Manhattan. (The SEC turned over the case to the U.S. Attorney’s Office sometime in 1998.) About this time, Bond began telling clients the news.
“He alerted us in writing that an investigation was under way and that he had a valid defense,” says Faye Moore, CFO at the $500 million Southeastern Pennsylvania Transportation Authority, for which Bond had managed a $20 million account since 1994. “People are always being investigated; you go through the process presumed innocent,” she says. But the authority’s pension guidelines “prevented [the plan] from keeping him on.”
By the time the federal indictment was unsealed in U.S. District Court on December 16, 1999, Bond had lost at least a half dozen clients, with accounts totaling more than $100 million: the NBA; the Police & Firemen’s Disability & Pension Fund of Ohio; Septa; United Food & Commercial Workers, Local #888; and the Washington Metro Area Transit Authority.
In one of Bond’s final television appearances before he was indicted, Rukeyser chided his guest for his faltering stock picks. The money manager’s reply: “I’ve been battered.”
Indeed. Twelve jurors may soon determine whether the damage is irreparable.
