The Go-Go Years (39 page)

What Coleman and his companions seem to have done was
to have pulled off, in the Wall Street era of federal regulation and presumably general enlightenment, a classic stock manipulation remarkably similar in a technical sense to those of the unenlightened nineteen twenties—and given it to an up-to-the-minute flavor by involving gambling casinos, kicky conglomerates, a Pop-art-collecting broker-dealer, and even a Hollywood star. Moreover, everyone seemed to be making money by the potful. Apparently one could now beat the games at Vegas without even going there!

But then one day a computer at the Amex started acting peculiar. The Amex computer was programmed to give off warning signals when there was unorthodox and suspicious movement in any listed stock; and in this case, it really worked. It began giving out frantic warning signals on Parvin-Dohrmann. The Amex started an investigation, and as a result, on March 26, decided to suspend trading in the stock temporarily. The next day, the company disclosed the previously secret deal with the buyers of the 143,200 shares, causing eyebrows to shoot up on Wall Street and Off Wall Street alike. On April 14, 1969, the Nevada Gaming Control delivered Parvin-Dohrmann another blow by decreeing that the company could not operate casinos in Las Vegas any longer unless Cornfeld's I.O.S. got rid of its 81,000 shares. (Coleman would complain later that I.O.S. not only got rid of the shares, but did so at a fat profit.)

In May, the S.E.C. finally stepped in. Coleman, desperate, got Korshak to assign a fixer named Nathan Voloshen to arrange him an interview with S.E.C. Chairman Hamer Budge. Voloshen came through, and the interview took place (Voloshen apparently got $50,000 for arranging it), but it was hardly a success from Coleman's point of view, since he failed to persuade Budge to call off his dogs. So Coleman and Korshak hastily began trying to find somebody on whom to unload their Parvin-Dohrmann stock at $140 or $150 a share. They finally hit upon Denny's Restaurants, a Los Angeles coffee-and-doughnuts chain with expansive notions. Denny's was eager for the deal—the very rumors of the merger sent the stock of both Parvin and Denny's skyrocketing. But Denny's didn't like the aura of shady
influence that by now pervaded Parvin-Dohrmann, mainly because one of its largest stockholders was a sometime target of various Justice Department antimob investigations. On October 13, 1969, the Denny's merger fell through, and the bottom fell out of Parvin stock. On October 16, the S.E.C. filed a suit charging Coleman, Korshak, and a long list of their associates with having manipulated Parvin stock in violation of the securities laws. Most of them signed consent decrees.

By the spring of 1970, the party was over. Coleman had turned his Parvin stock over to a voting trust and resigned from the management. The stock had sunk to $12.50 a share, so he, and all of his friends and backers, had sharp losses. Korshak poignantly complained to a newspaper reporter that all he had left after taxes on the half-million fee in the Stardust deal was a mere $68,000. Commonwealth United's stock price was down 97 percent to seventy cents a share. The cry of “go, go, go” was heard no more on sunny days on Wilshire Boulevard, because Kleiner, Bell, with the S.E.C. nipping at its heels about multiple securities violations, had prudently retired from the brokerage business. All the guys and dolls, from Korshak to Jill St. John, were sadder and wiser, but warm with nostalgic memories of the thrills they had had in the days before the electronic cop at the Amex put the arm on them.

5

Finally—to round out this inventory of the various symptoms of dementia that afflicted the 1968-1969 stock market—there were the hot new issues, the “shooters,” that shot up on their first day of trading from 10 to 20 or from 5 to 14, and later went to 75 or 100, oblivious of the fact that the companies they represented were often neither sound nor profitable: the garbage stocks that everyone could make money on just so long as, and no longer than, everyone could contrive to hold his nose and
avert his eyes and imagine that the garbage was actually nourishing and palatable.

If one fact is glaringly clear in stock-market history, it is that a new-issues craze is always the last stage of a dangerous boom—a warning of impending disaster almost as infallible as Cheyne-Stokes breathing is a warning of impending death. But not so inexorable; if heads could be cooler and memories longer, investors both large and small, professional and amateur, might ward off danger by reading the signs, eschewing the new issues, and lightening their commitments generally. But investors, like other human beings, tragically repeat their mistakes; when the danger signs are plain, the lure of easy money blanks their memories and dissipates their calm. In 1929 the shooters were jerrybuilt investment trusts like Alleghany, Shenandoah, and United Corporation. In 1961 they were tiny scientific companies put together by little clutches of glittery-eyed young Ph.D.'s, their company names ending in “—onics.” In 1968-1969, what a promoter needed to launch a new stock, apart from a persuasive tongue and a resourceful accountant, was to have a “story”—an easily grasped concept, preferably related to some current national fad or preoccupation, that
sounded
as if it would lead to profits. Such stories, like most stories, were best told quickly and concisely, and best of all within the name of the company itself. Were the new government Medicare and Medicaid programs pouring millions into the care of elderly persons? A cunning investor could presumably get a piece of that action by buying stocks called Four Seasons Nursing Centers or United Convalescent Homes. Were people's recreational expenditures soaring? Hardly coincidentally, there turned out to be a stock called International Leisure. Was concern about the environment a popular passion of the moment? Why, look here—a stock called Responsive Environments! Was weight watching in the wind? One might grow rich while growing thin, perhaps, with Weight Watchers International. Finally, it may be assumed that there were some investors who, so far as company names were concerned, didn't want to be bothered with the suggestion of any particular product or service, and just wanted
a stock whose name made it sound like a winner. For them, there was Performance Systems, Inc., not to mention Bonanza International.

And then there was National Student Marketing Corporation, whose “story” was the youth market: half of the nation's population was now under twenty-five, and that half, the experts contended, was spending $45 billion a year. Students were constantly on the front pages those days, though more often as a threat to business than as its potential customer. Yet at the very moment when the counterculture was having its brief day, while the front-paged students were seizing campus buildings and trashing deans' offices, there was a campus counter-counterculture, as sedulously entrepreneurial as Andrew Carnegie, vigorously in pursuit of the quick buck. Students and recent graduates who burned not to right the world's wrongs, but just to get rich in a hurry, were finding that they could possibly accomplish their aim soon after graduation, or even before it, by starting campus businesses or simply by playing the stock market. Such a young man, Andrew Tobias, wrote of Princeton in 1968, “One of the guys … was playing ‘puts and calls.'… Every lunch hour this fellow would walk up Nassau Street to the local office of Tout, Ticker, Dicker and Churn, I think it was, to punch out all his different holdings on the Quotro. … Another fellow got daily phone calls from his broker, and the news was usually good. … Across the hall there was a little company selling a combination life-insurance-mutual-fund package that was about to go public.
^*
Sometimes in the evening a Blue Cross salesman would come by to trade stock tips. He had bought a thing called Omega Equities at fifty cents a share.…”

The young man who set out in the biggest way to exploit the youth market, or at least to convince Wall Street that he was doing so, was Cortes Wesley Randell. The son of a Washington, D.C. business consultant, a strapping six-footer with a glib tongue and an easy smile, who had attended the University of Virginia (where his thesis topic had been “How to Start a Small Business”) and then done brief stints with General Electric and
I.T.T., Randell was about to turn thirty when, in 1965, he founded National Student Marketing Corporation in Washington as headquarters for a string of part-time student representatives on campuses whose job it was to distribute samples and employment guides, do market research, and sell fad items like posters and paper dresses. The enterprise took off like a bird. Sales for the first fiscal year, ending in August 1966, were $160,000, and for the following year, $723,000. By early 1968—just in time for the great national speculative fever—Randell had nearly six hundred campus reps and was ready to take N.S.M.C. public. And Wall Street was more than ready to receive it. Not Charlie Plohn, but the solid old-line brokerage house of Auchincloss, Parker and Redpath became N.S.M.C.'s underwriter for the stock issue; its lawyers were Covington and Burling, its accountants Arthur Andersen and Company. Buoyed by this parlay of glamour and apparent respectability, the stock, offered to the public on April 24, 1968, at a price of 6, went to 14 the same day and by early June was selling at 30.

Randell, who still held more than half of all the stock, along with several million dollars of cash proceeds from the sales of the other half, was now rich, and not temperamentally inclined to disguise the fact. Soon he had acquired a $600,000 castle on the Potomac, a fifty-five-foot yacht, and a $700,000 Lear jet to buzz around in. He paid himself only a modest presidential salary of $24,000, and for good reason; by denying himself and his colleagues high salaries, he could increase company profits, and that was where the
real
money was, at least for large stock and option holders. A small event that occurred shortly after the underwriting—the sudden resignation, without explanation, of both Covington and Burling and Arthur Andersen and Company—may be considered, in hindsight, to have been an evil portent for Randell and N.S.M.C. But nobody in Wall Street was looking for evil portents just then, certainly not in connection with a shooter like N.S.M.C.

And so, armed with a red-hot stock appraised by the market at a price-to-earnings multiple of 100, Randell set out to make his company a giant through acquisitions: six of them in 1968 and more in 1969, including three school-bus companies, Arthur
Frommer's low-cost-travel guides, compilers of high-school student lists, publishers of campus telephone directories, even some companies scarcely related to the youth market at all. Since the companies acquired, almost always with N.S.M.C. stock, had comparatively low multiples, N.S.M.C. earnings automatically went up with each acquisition. And Wall Street reacted as it was supposed to do in such situations; as the earnings rose, so did the bids, and before the year was out, N.S.M.C. stock had skyrocketed on the over-the-counter market from the original price of 6 to a 1968 high of 82.

Meanwhile, Randell had moved his headquarters from Washington to New York, to be where the financial action was. Significantly, the corporate style he fostered was anything but countercultural. N.S.M.C. executives, however youth-oriented or youthful themselves (and some of them were scarcely out of their teens), did not affect long hair or mustaches or love beads or jeans, nor did they smoke marijuana; rather, they wore dark suits and narrow ties, and kept their shoes shined. The chief, indeed the sole, gesture that N.S.M.C. seems to have made to the mood of campus revolt was to try to cash in on it by selling special pillows for the use of sit-in demonstrators. In simple truth, N.S.M.C. was not primarily selling goods and services to youth at all—it was primarily selling stock to Wall Street.

Its astonishing success in that particular enterprise is a crucial sign of the times in Wall Street. Randell would impress and flatter security analysts and fund managers by taking them on tours of his castle or calling them on the skyphone from his Lear. It became his standard procedure to predict tripled earnings for each coming year over the previous one, and he was a persuasive young man—particularly when his hearers were people who wanted to believe. Indeed, even if he were not entirely to be believed, did it matter, for the short run? In the market of 1968 and 1969, wasn't an illusion, so long as it was universally shared, just as good a money maker as a reality? Bankers Trust, Morgan Guaranty, the Continental Illinois of Chicago, and the State Street Fund of Boston bought N.S.M.C. stock; so did the Harvard and Cornell endowment funds, the General Electric
pension fund, and the University of Chicago. There seemed to be scarcely any investment citadels left for Randell to conquer.

And the stockbrokers—did they doubt Randell's glowing accounts of N.S.M.C.'s present and future? He was able to arrange things so that they could hardly afford to; before long a number of them were working for him, beating the bushes to find companies for N.S.M.C. to acquire so that it could keep increasing its earnings, and being paid off handsomely for their efforts with batches of N.S.M.C. stock. Finder's fees in the form of stock were paid to W.E. Hutton, Halsey, Stuart, and Smith, Barney, among others. Sometimes the brokerage firms apparently found it possible to sweeten up the deal with a recommendation of N.S.M.C. stock to their customers; thus, in 1969, Kidder Peabody gave it a rave review in a seventeen-page report, and hardly more than a week later, Kidder received 4,000 shares of N.S.M.C, then selling above 120, solely for its imagination and resourcefulness in proposing to N.S.M.C. that it acquire a company called Stuckey and Spear that manufactured college rings.

So the money factory was a closed chain, infallible so long, and just so long, as the chain remained unbroken. The weak link was, of course, the disparity between Cort Randell's promises and his company's real results, which, closely scrutinized, were unspectacular. After having predicted tripled earnings for a given year, Randell found himself forced to resort to creative accounting to make the prediction come true; then, having written artificially high earnings for that year, he was compelled by his game's inner dynamics to predict that those earnings would be tripled again in the following year—and then, somehow, goad his accountants to Parnassian heights of accounting genius to fulfill the new promise. The first serious test of his credibility in Wall Street came late in 1969. N.S.M.C.'s report for the fiscal year ended that summer showed net profit of around $3.5 million, duly fulfilling Randell's projections. But to achieve the figure, the company's accountants had been obliged, among other strokes of creativity, to defer until a future year product development and start-up costs of $533,000, even though the
money had already been spent; to include as income $2.8 million of “unbilled receivables,” which was to say, money that had not been received because it had not even been asked for; and—perhaps most egregiously—to include as net income more than $3 million attributable to the profits of N.S.M.C. subsidiaries that N.S.M.C. had not yet acquired at the close of the year being reported on. With the elimination of that single item, which was explained to investors in a small, mumbled footnote, N.S.M.C.'s 1969 profit would have been all but wiped out.