The Prince of Penny Stocks
Fortune; 1/19/1987; Katz, Donald R.
EVEN AMONG DENVER'S free-L wheeling fraternity of penny stockbrokers, Meyer Blinder stands apart. The irrepressible founder of Blinder Robinson wears high-collared silk shirts open to the sternum, gold chains, a gold bracelet, and a diamond and gold pinky ring. Then there is his street-corner-tough Brooklyn accent, and a nose gnarled like a prizefighter's -- the result, he relates, of the time a customer slammed the door in his face during an earlier career selling vacuum cleaners door-to-door.
Blinder's style may be a long way from Wall Street. But plenty of people want him as their broker. More than 1,700 stockbrokers work for Blinder in 58 offices spread across 35 states. His firm brings public more new issues each year than any Wall Street house, and Blinder, 65, has made a personal fortune he estimates at nearly $200 million by selling highly speculative stocks. Blinder says he underwrites only the brightest entrepreneurial dreamers and then sends his brokers out to sell pieces of the dream to investors willing to roll some dice.
He has built an empire by taking the necktie off the brokerage business, but detractors say he operates in the spirit of outlaws who once roamed the Rockies. Alarmed by Blinder Robinson's aggressive ways, the Securities and Exchange Commission has tried for six years to put the firm out of business, and local regulators in a score of states have challenged either the licensing status or sales practices of Blinder's brokers. In late December, the SEC suspended Blinder Robinson from the brokerage business for 45 days and suspended Blinder himself for two years. Blinder said he would appeal the ruling in federal court and ask for a stay of the SEC order while the appeal is pending. Meanwhile, trading was halted in the company's stock, Blinder International Enterprises Inc.
Blinder attributes most of his problems to his success. He said as much recently to a group of trainees he was teaching to sell stocks the Blinder way. ''You know why I got so much trouble with regulators,'' Blinder told them, his jewelry and his smile gleaming in the spotlights. '' 'Cause they come in here and look at my salary, and they get sick.'' Blinder expects to make $9 million in 1986, twice what he collected in 1985. He also controls 54% of the shares in Blinder International, which went public two months ago at $1.50 a share and was recently selling at $3.50. At that price his stake was worth $140 million. Blinder says his firm will report revenues of $125 million in 1986, more than double the 1985 figure. In 1987 he intends to open four new offices and train 200 new brokers every month, and then inspire each broker to establish one new account per day. ''There has to be a lot of ya here,'' Blinder told his 200, mostly young trainees, ''because the more of you there are and the more you sell, the more money I make. You are about to enter the greatest business in the world for making the most amount of money in the shortest span of time, and do- ing it honestly. Don't cheat. You know what happens if you cheat. I get in trouble.''
Even without a hint of cheating, the penny market, where stocks generally trade for less than a dollar, is wild and risky. Some say the business got its start a century ago, when miners sold off portions of their undiscovered finds in order to keep up the search. Since then, through good times and bad, Denver has been a town for fast deals. Denver money underwrote 308 public offerings between October 1985 and October 1986, more than double the number for the same period a year earlier. Many penny shares open with an astounding bang that sends the bid price up by several hundred percent within a matter of days. Frequently the bust is not far behind.
The penny market has a lingo all its own. Stocks trading at up to 5,000 times their projected earnings get passed back and forth in what some penny players call the chaser market, the chase being after rumors. Though local brokers are often accused of high-pressure salesmanship, they say their tactics are simply less genteel than those practiced on Wall Street. In Denver there is still talk of crossing stocks -- of salesmen buying a stock from one customer and selling it to another without sending it back to the trading room -- a technique that winnows the market down to a broker's Rolodex. Robert Davenport, a regional director of the SEC in Denver, calls the penny trade a ''greater fools market,'' by which he means a customer had better find another fool to take a stock off his hands before the price falls.
Nobody plays the penny market harder or better or with more style than Meyer Blinder. ''Ya know,'' Blinder says, gazing into the palatial penthouse suite where he works, ''when I built the Blinder building four years ago, I sort of pictured myself sittin' here and staring out at Pike's Peak every so often.'' But his desk faces the other way, and he says that ''in all those years I can never remember turning around.'' His $1-million office covers the entire top floor of the building 15 miles outh of downtown. ''I modeled it after some of the suites I've seen in Las Vegas,'' he explains. ''The ones for high rollers.'' He has a circular bar with a golden sink. He has a kitchen, a cook, and a dining room. He has an exercise room with a sauna and a small swimming pool. The flick of a switch sends powerful jets of water coursing from one end of the pool toward the other, so when Blinder wants to exercise, he can get in the pool and swim perpetually against the stream.
BLINDER has been heading up stream all his life. ''I sucked wind for a long time,'' he says. ''I had my pauper days. I sold picture frames. I sold wedding albums. I sold magazines outside burlesque houses.'' He grew up in various working-class neighborhoods of Brooklyn, New York, as the short kid who could never back down from a fight. He got his first job when he was 8, helping out at his father's candy store. Instead of attending high school, he went to work across the river in Manhattan's garment district. ''For two years I was one of the guys who pushed those gigantic coffin-shaped boxes full of silk down 34th Street,'' he says. ''I couldn't even see over the top. I made $8 a week and went to night school.''
At 18, with $150 in capital, he started his first business, a textile remnants operation. After several years of door-to-door salesmanship, he began a food vending business that eventually grew large enough to require more capital. ''I went to the bank,'' Blinder recalls. ''I needed $1,000, but the guy would only give me $150 and I had to put up my car and my business as collateral.'' Blinder then visited several New York underwriters in hopes of raising funds through a public offer- ing. They all turned him down. At that point, says Blinder, ''I went to an attorney whose name I took off some prospectus, and we sold stock in our vending company to our customers. We raised $150,000.''
Blinder continued to segue methodically from one business to another, moving each time to something that promised quicker rewards in a shorter amount of time. He was 49 when he finally discovered the securities business. After an abortive attempt to open a small brokerage in Jersey City, New Jersey, he and an old friend, Mac Robinson, began a storefront operation in Westbury, Long Island, in 1970. Rather than selling equity in large companies, they decided to specialize in small over-the-counter stocks. Blinder felt he understood small businesses and thought that in the OTC market a fellow could really make a play. He says Robinson couldn't stand the pace and sold out shortly thereafter.
In 1977 an acquaintance of Blinder's who ran a brokerage firm in Denver was slipping into bankruptcy. Blinder put up $50,000 to take over the outfit and, at 56, he and his wife Lillian moved to Denver. His second son, Larry, 35, followed soon after and now works with his father; Martin, 40, runs a Van Nuys, California, fine-art publishing company, Martin Lawrence Limited Editions Inc., which Blinder Robinson brought public in 1985. Blinder arrived in town at the start of a penny stock boom unlike any since the surge in uranium issues during the mid-1950s. This time the catalyst was oil and gas. In May of 1977 Blinder Robinson underwrote a company called Federal Energy and sold it as an initial public offering at 10 cents per share. Before long the price had doubled. From the beginning, Blinder backed small businesses that wouldn't qualify for loans from banks, insurance companies, or large venture capital firms. ''I wanted to give them a little capital to get started,'' he says. ''I kept thinking how much faster I would have been a success if somebody had given me $300,000 when I was young.''
Blinder figures he has raised over $200 million for the 78 companies he has brought public. But almost half have gone under or have been reconstituted as other businesses from empty shells. Although 52 of the firm's new issues more than doubled at some point after going public, only 21 currently sell above the offering price, and 22 have owners willing to sell but nobody willing to buy (see chart). Blinder argues that at least he gave investors a chance for significant gains, and struggling entrepreneurs an opportunity to succeed.
State and federal securities officials take a different view. The regulators who have dogged Blinder believe that, like several other firms specializing in the shares of small companies -- chiefL among them First Jersey Securities, whose chairman, Robert Brennan, resigned last September -- Blinder Robinson so domi nates the market in the securities it brings public that stock prices become open to manipulation.
Blinder's regulatory difficulties began in 1980 after a federal district court judge ruled that his brokers made ''misrepresentations and fraudulent price predictions'' when they sold shares in American Leisure, an Atlantic City casino and hotel company. The judge also ruled that Blinder violated antifraud statutes when he bought some of the stock at the time of the offering without publicly disclosing the purchase. Blinder claimed that his own attorneys and an SEC lawyer told him the maneuver was legal. Nevertheless, the district court issued an injunction barring Blinder Robinson from any future violation of securities laws. Subsequently, an administrative law judge ordered sanctions against the firm that would prohibit Blinder from associating with any broker or dealer for 90 days. Blinder appealed the ruling to the full SEC, which slapped on the even tougher sanctions in late December. Earlier Blinder had begun a still-pending appeal to quash the district court's ruling.
In 1983 the SEC regional office in Denver accused Blinder Robinson of delivering to other firms securities that customers had paid for, thus preventing shareholders from gaining access to them. Blinder says he relishes the court fight due to begin in early 1987. ''I can really drag the SEC through the mud on this one,'' he says. ''I want them to pick themselves up, say they made a mis- take, and walk away.''
OVER THE YEARS Blinder Robinson has been served with several fair-practice complaints by the Na- tional Association of Securities Dealers. The NASD refuses to comment, but SEC sources contend that four of them led to sanctions. The most recent complaint alleges that Blinder Robinson made outsized trading profits on one stock, Telephone Express. Even when Blinder Robinson's trades, and those of other thinly traded stocks, meet NASD guidelines, the ''spread'' -- the difference between the bid and ask price -- is often wider than for blue chip issues. A stock that can be bought for 7 cents on a given day can sometimes be resold the same day for only 4 cents. The vast divide would necessitate nearly a 60% price appreciation for a shareholder to escape with his original investment.
As for the other charges against Blinder, the SEC's Davenport says 30-odd states have actions pending against the firm -- mostly cases of overeager brokers selling securities by phone in states where the issues weren't registered. Blinder says his firm is fully licensed in 35 states, and that only two -- Iowa and Nebraska -- have flatly denied him entrance.
Blinder also got caught up in a mini-scandal involving an account he managed for Colorado Governor Richard Lamm that turned a $5,100 investment into $50,000. In June of 1985 Blinder ivested Lamm's money in a company called Source Venture. He sold the stock later that month and invested the proceeds in other Blinder Robinson issues. In July, Source Venture merged with Cattle Baron Inc. Blinder owned half of Cattle Baron, which wanted to build a casino near Las Vegas.
Last August the Rocky Mountain News revealed that long after selling his Source stock Lamm, a vocal opponent of gambling in Colorado, had written a letter on his official stationery to the Nevada State Gaming Commission recommending Blinder for a casino license. The letter stirred up a controversy that forced Lamm to withdraw his recommendation, drop Blinder as his broker, and promise to give his trading profits to charity. Lamm claims he didn't know anything about Source Venture until several months after it was sold. He also says he knew nothing about his other stocks, since the trades were handled by his lawyer. Blinder scoffs at the governor's protestations of ignorance. ''He knew about his trades,'' Blinder mutters. ''Guy's a jellyfish. We sent the confirmation tickets directly to his home. He gave me his card with his home phone on it. The son of a bitch never even thanked me for lending him my plane the day he was stuck in Mexico and had to get to a governors' meeting in Utah. He asked for that plane and I sent it. Probably cost me ten grand. Now he says he barely knows me. Guy's got no backbone.''
Some people who know Blinder believe he has been treated unfairly. One of those is Mark Goldstein, the former mayor of Gainesville, Florida, who counts himself among Blinder's satisfied customers. ''As someone experienced in politics,'' Goldstein says, ''I think it's clear that the Denver authorities are out to get Meyer. When they can't get you in court, they'll go after you in other ways. They don't like tough guys, and Blinder's a tough guy.''
In 1982 Goldstein went to Blinder Robinson to raise capital for a small broadcast and satellite TV system after being turned down on Wall Street. Blinder Robinson took ACTV public at 15 cents a share; recently the stock was selling for 12 1/2 cents. Goldstein came back to Blinder a year later to launch Mam matech, a company that teaches women how to detect breast tumors. Mammatech stock opened at a penny, ran up over a dollar, then settled back to a recent bid of just under 2 cents a share.''Sure, the man talks like a bull from Brooklyn,'' Goldstein says, ''but he gave my companies a start. I'd like to know the cost to the taxpayers of the SEC actions against him. And I'd like to compare his financial work to the mergers on Wall Street that put people out of work and take prod- ucts out of the marketplace.''
TED ABBUZZESE, who founded Wall Street West, another Denver penny stock firm, seconds the motion that regulators have been hounding Blinder. ''All the penny brokers have been caught in the witch hunt,'' says Abbuzzese. The SEC regional office accused Abbuzzese of market manipulation in 1980, and the Colorado state commissioner of securities circulated the accusations throughout the country. When Abbuzzese appealed to the SEC in Washington, the charges were unanimously overturned. Abbuzzese says that, compared to Blinder, he took a ''turn the other cheek'' approach by appealing to the SEC rather than going to court. He adds that Blinder's troubles are making it ''hard on the others of us in Denver.''
A senior executive at a third penny firm is more outspoken about Blinder's effect on Denver houses. ''You want to know what we hold against him?'' asks this executive, who declines to be identified. ''We resent his supporting bad deals. He's giving us all a bad name. I'm a person of substance here. My great-grandfather has a mountain named after him. I just wish he'd take himself and his sleazo deals and get out of town.''
Blinder says he senses a great number of people backing away from him now. When he was taking so much heat last summer, the executives of Gateway Communications, a technology firm that stands as one of Blinder Robinson's success stories, defended him. But after Blinder's problems multiplied, the company would issue only a vague financial statement to a reporter seeking comment on its relationship to Blinder. And two small Long Island firms that were to be co-underwriters of Blinder Robinson's own public offering dropped out, one of them admitting openly that bad publicity was behind the decision. ''With the SEC you're guilty by association,'' explains the head of one of the firms.
WORST OF ALL, says Blinder, the leadership of local charities he supports -- specifically those in the Denver Jewish community -- have failed to back him publicly. ''I really tried to join in, but now I feel I'm being ostracized.'' Blinder is a prominent benefactor of charities, both locally and nationally. An emergency center at the Denver Children's Hospital bears his name, and he has become the nation's principal sponsor of research into Crohn's disease, a degenerative gastro- intestinal illness that afflicts his wife and his son Larry. ''I won't give any money to the arts,'' he says. ''I'm tone deaf, and I happen to think it's more important to cure cancer than to have a ballet.''
Blinder admits that his inability to back away from a fight is hard on his wife, who would like to leave Denver. ''I just can't do that,'' he says. ''There are still a few things I want to do here.'' By that he means making the SEC turn tail, making his firm ''larger and more profitable than Merrill Lynch,'' and making himself a billionaire. Despite the charges hanging over Blinder, his brokers open hundreds of new accounts every day, and the firm intends to apply for membership on the Hong Kong stock exchange. ''It's a lot better to be up here gettin' shot at than being down low and gettin' stepped on,'' Blinder mused as the sun dropped behind the peaks to the west. ''You know what I really wish,'' he said, his voice momentarily losing its edge. ''I wish I could have 20 years back. I could make my money so much faster if I got to do it all over again.''
--COPYRIGHT 1987 Time, Inc.
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