As earlier reported in this blog, Jim Couri pled guilty to a felony in violation of the federal securities laws "by entering a [securities] order with the purpose of creating a false and misleading appearance with respect to the market for stock in Conrac Corp." Couri also entered into a lifetime band from securities law violations. Below is the story of Jim Couri's direct involvement in a massive criminal stock fraud as reported in Barron's Financial Magazine.
Barron’s National Business & Weekly Financial Magazine
July 10, 1978
No Smoking Gun
Justice Drags in the 1975 Conrac Stock Scandal
By Steven S. Andreder
Thursday, December 18, 1975. Trading on the New York Stock Exchange and the stock of Conrac Corp., a manufacturer of electronic instrumentation, is suspended. Reason: a cascade of sale orders swamping available bids. Trading halts on the Big Board are scarcely uncommon. But typically they last a few hours, perhaps a day. Conrac, though, fails to show on the tape again that session or the next. Not until January 25, 1976 -- more than a month after the suspension – do these shares again changed hands. And not before the Securities & Exchange Commission moves in, charging in a civil suit that the stock of Conrac has been the target of the manipulative scheme masterminded by confessed embezzler and ex-convict Edward M. Gilbert.
And, going on two years and six months after the fact, the headlines yellowed beyond legibility, nothing was happened. Although the SEC and its civil complaint listed 18 defendants, besides Gilbert, including a New York Stock Exchange specialist and an heir to the fortune of the late Charles Revson, founder of Revlon, none has been brought before the bar. “We’re completely in the dark as to what, if anything, is going on,” says an official at Conrac Corp., which the SEC from the start has held entirely blameless in the manipulation. A spokesman for the New York Stock Exchange echoes bemusedly, “We turned over what we had to be SEC early on, and we haven't heard anything about it in some time.”
Yet rigging a Big Board listed stock scarcely falls into the one-of-those-things category. That a specialist has been alleged to have been involved goes to the heart of the exchange auction market system itself long under attack. And since the SEC held up trading on the shares during a stretch, which encompassed an explosive burst upward in the stock market, the action may have cost innocent Conrad shareholders sizable gains. Meanwhile, of course, the alleged manipulators have been free to go about their business. Too, if the SEC's aversion of the Conrac caper is reasonably accurate, the conspiracy included Swiss banks and a plan to use phony commodity straddles to achieve tax deductions.
The Feds at Work
The SEC insists that it still plans to pursue injunctive relief through civil proceedings. However, Barron's has learned that a federal grand jury has been probing the case. In the circumstances, the parallel investigations had stymied the SEC. One defendant has thus far won a protective order against testifying before the Commission's staff. Others, asserting their Fifth Amendment rights against self-incrimination, have refused to answer any questions.
As is their custom, officials at the SEC's New York office declined comment. An appointment to interview regional administrator William D. Moran was canceled. The staff attorney who did most of the initial spade work on the case over a year ago left the Commission for private practice. The SEC lawyer supervising the case said he had only peripheral knowledge at this point of any details. U. S. Attorney Robert B. Fisk, Jr. would only acknowledge that an investigation by his office is underway. None of the defendants or their attorneys would talk. They either failed to return phone calls or refused to discuss the case.
Nonetheless, conversations with others and access to court records, which contain extensive affidavits by an SEC attorney and at least two defendants, along with recent depositions taken by the SEC of other witnesses, provide considerable insight into what happened. Baron’s also obtained hundreds of pages of testimony by key defendants before the SEC during at the investigatory phase of the case, which they swore to, before they took the “Fifth.”
According to officials of Conrac, about the only thing the SEC would indicate to them early on about its investigation into the activity in the Company's shares was that they would be surprised to learn the identity of one individual involved. Who, of course, turned out to be Edward M. Gilbert -- once described as “the last Gatsby.” Gilbert, now 54, likes both high living and highrolling, but fell afoul of the law back in 1962, when he fled to Brazil after helping himself to 2 million of cash of E. L. Bruce Co. to cover personal stock trading accounts.
Gilbert had gained control of Bruce in a proxy contest; he then went after Celotex Corp., urging both family and friends to buy the stock. His grand design collapsed along with the stock market that year, and eventually he took off for Rio. Although a US Court of Appeals ruled only last year in a tax matter that it didn't think he had stolen the money, Gilbert in 1966 did plead guilty to grand larceny and securities violations and wound up spending 25 months in jail.
Nor has that been Gilbert's only brush with the law. In 1975, in another case, he signed a consent order, without admitting or denying the allegations of a complaint, agreeing to permanent injunction enjoining him from various security law reporting violations of the SEC.
Undaunted, according to the SEC complaint, Gilbert and certain other defendants sometime around Oct. 1, 1974, “ embarked upon a scheme to manipulate the price of Conrac Stock.” It charges him and other defendants with a series of purchases and sales of Conrac stock to create “an illusion of widespread and bona fide buying interest in Conrac,” and claims they “dominated and controlled the trading in Conrac causing the price of the stock to reach arbitrarily inflated levels.”
Of the original 19 defendants, two -- Greenell Corp and Homestead Properties -- in June ‘76 signed consent orders. Among the others are three Gilbert-controlled trusts and two broker-dealer entities in which he has interests, two Swiss banks and a Zürich-based corporation and its principal, Theodore Arnold.
Others charged in the SEC action include Ludwig J. Cserhat, Judson L. Streicher, John C. Revson and James C. COURI. Born 43 years ago in Budapest, Hungary, Cserhat was a stockbroker and executive vice president of at Heine, Fishbein & Co. Inc., at the time the complaint was filed. He currently is a Vice President at a successor firm, Herzog, Hein, G. Gould. Streicher, age 55, is a principal and the specialist firm of J. Streicher & Co. Revson, 35, has worked for his father's cosmetic company in various capacities since 1965, when he started as a buyer. He is now a Vice President.
COURI, 39, quit college [specifically, after only a few months at each, he dropped out of both Duke and Columbia] back in the mid 50s for Wall Street, where he was successively a clerk, over-the-counter trader and registered representative. In 1962, he left the street to enter private business. COURI's father was head of customs under the Eisenhower administration, and, according to COURI, conceive the notion of duty-free shops. Nicely in keeping with tradition, then, is that among his assorted business ventures COURI was involved in duty-free shops at Kennedy Airport. For a spell, he also held partnership interests with John Revson dealing in “investments.” Both lost heavily. As a result of that relationship, for several months COURI was employed by Revlon.
Talkative Witness
In the main, the SEC's case is built around extensive, detailed interviews with COURI; these spanned two full days in over 400 pages of sworn testimony. However, when the SEC went to court to attempt to obtain a preliminary injunction against the defendants, COURI refused to testify, forcing the agency to withdraw its motion.
Gilbert had told the SEC that he had bought Conrac as early as 1974, along with such other securities as Milgo Electronics and Polaroid. He testified that he knew none of the officers or directors of Conrac, nor of Rixson-Firemark, a company with which Conrac was then planning a merger. His knowledge of Conrac, claimed Gilbert, went back many years to when the Company was known as Giannini Controls.
According to Gilbert's attorney, Peter Fleming Jr., his client as of March 1975 owned 20,000 shares of Conrac. However, through a nexus of companies and individuals, to whom Gilbert lent money, trading in the stock and volume began to emerge. By May of that year, says the SEC, the so-called “Gilbert group,” which included the trust, various corporate entities, some individuals and Bank de L’Union of Switzerland, had accumulated via 25 accounts at two brokerage firms, some 75,000 shares of Conrac. During the period of accumulation, then SEC attorney Stephen J. Glusband notes in his affidavit, the price of Conrac rose from roughly $9 to$20 a share. By July of the group’s holding, the SEC alleges, stood at 106,300 shares.
At that point, neither COURI nor Revson had yet come on the scene. In fact, Revson only met Gilbert once some years before while on a transatlantic crossing with his mother when he, Revson, was 9 or 10 years old. However, in early 1975 COURI became acquainted with Gilbert through the latter’s daughter. After a series of meetings, during which COURI testified he received glowing reports from Gilbert about the company and its earnings, COURI bought some Milgo stock.
COURI's friendship with Gilbert continued to ripen. Gilbert told COURI about a pending deal he had to lend to Artists Entertainment Complex, headed by Martin Bregman. Artist had the rights to the movie Dog Day Afternoon and represented the star, Al Pacino. Gilbert says COURI, was to lend Artist $250,000 in 50,000 monthly payments, in return, he was to get stock plus options. Apart from recommending Artists’ stock to an acquaintance, who bought 10,000 shares, COURI claims he did nothing with Artists, though he did meet certain of its principals.
In the summer of 1975, Gilbert left for Spain and during his absence, COURI says, he received a phone call from a Gilbert associate, Lester Kerschner (also named a defendant in the Conrac case). Kerschner, according to COURI, said he was calling for Gilbert. He explained that a $50,000 payment was due in a few days to Artists Entertainment and could he, COURI, lend Gilbert the money. The request, according to COURI, came as a surprise. “I was very much taken back by that because, really, I wasn't that close to Gilbert.”
Nonetheless, after a transatlantic conversation with Gilbert, COURI says, he arranged with a third party to advance the funds to Gilbert, which were paid back at about month’s time. By way of compensation, Gilbert offered COURI participation in his Artist deal. COURI turned it down. It was then, COURI recollects, that Gilbert offered him “an arrangement on Conrac."
90-Day Option
More specifically, COURI was to purchase 3,000 shares of Conrac. In return, Gilbert would give him a 90-day option to purchase 1,000 shares of Conrac at 19 (the price at which the stock was then trading) and a cash payment of $3,000. COURI agreed. In 1974, according to the SEC, average daily trading in Conrac was around 2,000 shares. On the day COURI placed an order for the 3,000 shares, a Gilbert-related corporation, Municipal Street Sign Co., Inc., sold a like amount and another entity disposed of 400 shares, while two other individuals named as defendants -- Kerschner and Robert Dudley -- sold 200 and 100 shares, respectively.
In his affidavit, SEC lawyer Glusband charges: “In connection with this purchase and nearly all other transactions executed subsequently by COURI for his own accounts and those of Revson, Gilbert directed COURI as to when to purchase or sell Conrac shares, what amounts to purchase or sell the shares for, and the price at which the transaction should be affected” (emphasis in original).
Gilbert, according to the Glusband affidavit, offered to loan COURI $30,000 in early October 1977, if he would purchase an additional 3,000 shares of Conrac. COURI bought 2,000 shares at prices of between 18 3/4 and 20 on October 3 and 1,000 shares on October 6, when the stock closed at 20. Gilbert, as the SEC attorney reconstructs the deal, subsequently guaranteed COURI that he would help him in purchases of Conrac and there would be a bid, for whatever shares COURI needed to sell. Gilbert purportedly told COURI that he controlled 200,000 shares of Conrac (of a total 1.3 million outstanding). Gilbert also said, according to COURI, that he was worth 15 million to 20 million. In Gilbert’s SEC testimony, he remarks, of COURI “I never told them exactly how many shares I owned. I always lied a little bit.”
Enter John Revson. In a telephone conversation related to their past partnerships COURI tells the cosmetics heir that he is buying Conrac. Revson, Glusband says, told COURI to purchase for his account 5,000 shares of Conrac and COURI does just that after opening a brokerage account for Revson and obtaining from him power of attorney to buy and sell stock. COURI reported his conversation to Gilbert, so the affidavit relates, and the two met to “plan the purchases for Revson.” Revson, subsequently bought another 10,000 shares. “Every single order, whether I was physically in Eddy's office, or other places” COURI insists, “ was done in complete knowledge before the fact by Eddie.”
Eventually, Revson insisted he meet with Gilbert. The meeting took place one morning in Gilbert's Fifth Avenue office, where – Surprise! Surprise! -- Revson was treated to a bullish report by Gilbert on prospects for Conrac. Predicted Gilbert: “I think it is going to be the stock of the year.”
At one point, says COURI, Gilbert pressed Revson. How many Conrac shares he could be “comfortable with”? Revson parried the question but indicated he was soon to get his inheritance. Then, according to COURI's testimony, the conversation went this way:
“Gilbert: ‘Let me try another way, John. Supposing I were to guarantee you against loss,’ he says: ‘How many shares would you be comfortable with?’"
“Revson: ‘On that basis, you know, I probably would arrange to buy quite a bit.'"
“'Well, how many?’”
Remembers COURI: “I think John said something like 60,000 shares. Maybe he said more.”
Gilbert then, according to COURI, proceeded to guaranty Revson against loss, adding, “I can assure you you are going to make a load of money.”
Guaranteed Against Loss
In his affidavit, Revson claims he asked COURI to handle the buying of the Conrac shares because he was “fully occupied with my duties at Revlon,” plus the fact that “I was really a novice in buying stocks.” Revson says that four or five after the Oct. 23 morning meeting with Gilbert, at which he agreed to purchase 12,000 to 13,000 shares of Conrac (in addition to 18,500 he already owned), Gilbert in a telephone conversation asked him to buy more stock if he had the money and repeated that Gilbert would guarantee him against loss.
“Based upon the fact of his guarantee,” says Revson, “and the fact that the rising price of Conrac shares appeared to confirm the wisdom of Conrac as a good investment, I decided to purchase an additional 15,000 shares of Conrac to bring my holdings to 45,000 shares and I asked COURI to place the orders on my behalf.”
Revson also declares, “It is important for the court to know that I was the victim and the target, and not a perpetrator, of the manipulation which the SEC alleges.” And he adds: “As a result of the defendant’s [sic] activities complained of by the SEC, I have sustained an actual monetary loss of at least $680,000, and potentially could sustain at even larger loss….”
According to the SEC, in October 1975, the “Gilbert group” and what it calls the “COURI-Revson subgroup” accounted for purchases of 126,950 shares. Approximately 58.4% of the total volume in the stock. The following month they accounted for purchases of at least 202,000 shares, or 61% of overall turnover. At the end of November, the SEC alleges, Revson and COURI had amassed over hundred 18,000 shares of Conrac, while the Gilbert group had cut their holdings by over 42,000 shares, to approximately 79,000 shares. In December, their share of the trading volume in Conrac was 64.8%
Those numbers, moreover, do not begin to suggest the dimensions of the alleged manipulation. From his office, COURI declares in his sworn testimony, Gilbert not only orchestrated sales and purchases of Conrac stock, but also indicated which brokers were to meet on the floor of the exchange to effect transactions in the stock. COURI for a while used space in Gilbert’s office. “I would say to the kid at Paine, Webber, for example buy 6,000, 8,000 an to meet E.F. Hutton, … or meet this one or that one because Gilbert would say that is who he is selling [through], so the block would be done and it would converge at the post.”
At one point in November, Gilbert had to sell 6,000 shares of Conrac. But to prevent those shares from “hitting the street,” Glusband relates, Gilbert got Revson's permission to buy 8,500 shares for his account. Gilbert again assured Revson there was no risk and that Revson, says the affidavit, would get a 10-day extension of time to make payment for the block. As it turned out, 3,000 shares of the stock Revson bought came from a 6,000-share block being sold by COURI.
A day or so later, Gerd Enterprises Corp., a Gilbert related entity, sold 1,000 shares of Conrac at 30 1/4. The purchaser of those shares was COURI. The Glusband affidavit charges “both the buy and sell orders were either placed by Gilbert were placed at his direction and represented the highest price reached by Conrac during 1975.”
The scheme alleged by the SEC appears to have come apart for several reasons. Gilbert, says COURI, had to sell or swap some stock. Also, COURI grew over extended: at mid-December, he needed $380,000 to meet his purchase commitments. By late November, he had accumulated about 36,000 shares, and, according to the SEC, had told Gilbert he must sell about 25,000 of them. Gilbert, swears COURI, told him he could not accommodate him because Gilbert had been told by Ludwig Cserhat that “the SEC is sniffing around.”
According to the documents, Gilbert then urged COURI to induce Revson to buy the shares for which COURI would put up the money on the settlement date. Revson agreed. Gilbert instructed COURI to place orders for the purchase of 800 shares for Revson's account in order to boost the price of Conrac to around 29 before the block traded. In a series of moves, COURI, it’s related, buying on behalf of Revson's account, managed to lift the price to 28 ¾.
Matched Orders
The SEC then states: “When the price for Conrac reached 28 3/4, COURI instructed his account executives at L. T. [Securities, Inc.] to cross at the firm 6,400 shares of Conrac, between his account and Revson’s account at 28 7/8. He then told his account executive that Bache & Co. would be the seller of 17,000 shares on the trading floor of the New York Stock Exchange at $28 7/8. Bache, acting for COURI, sold the 17,800 shares to Revson. This entire series of transactions was directed by Gilbert.
COURI then went to Gilbert for help in raising funds to make good on his promise to Revson to finance the transaction. Gilbert, according to Glusband, said he couldn't help him, but instead provided him with a promissory note for $375,000, signed by one of Gilbert's corporate enterprises. Gilbert advised COURI to take the note to be discounted at Morgan Guarantee, where both COURI and Revson maintained accounts. The bank, however, turned them down. Revson, in his affidavit, says he wound up paying for the stock and then was compelled to sell 29,000 shares on the open market. Loss: approximately $150,000.
At various times, COURI was urged by Gilbert, he recalls, to interest others in purchasing Conrac. However, short of funds, COURI found himself in very deep water. One brokerage firm began to sell out some of his margin holdings. That prompted an infuriated COURI -- who then held 120,000 shares of which all but 20,000 shares had not been paid for -- to order that his entire block of several thousand shares be dumped at the market. COURI thus precipitated the trading halt in Conrac.
Conceivably, COURI spreads himself too thin because of a side play in the shares of Western Co. of North America, a Texas-based supplier of products and services to the oil and gas industry. This particular episode, the SEC contends, goes back to a dinner on November 3, 1975, by Gilbert, Ludwig Cserhat and Judson Streicher.
Cserhat was one of Gilbert stockbrokers; he had a direct line to Gilbert from his office at Heine Fishbein. In 1975, Cserhat generated about $200,000 in commission income, of which, he has testified, around 75% came from Gilbert or related accounts. At one point, Cserhat handled transactions for COURI and Revson as well. He was also a broker for Banque De L’Union, which had two accounts at Heine Fishbein. In 1975 it leased 50 trades took place in the stock of Conrac in one of the accounts of the Swiss bank, involving the purchase and sale of over 32,000 shares, with a value of over $706,915. For the other account, 5,500 shares were bought at a cost of $107,135. Banque De L’Union was introduced to Heine Fishbein by Gilbert (as was another account of the Swiss bank at Bear Stearns), says the SEC.
Three Partners
Streicher at the time was the New York Stock Exchange specialist in Western Co. Gilbert, Cserhat and Striecher, moreover, were investors in a corporation owning two hotels in Aspen, Colorado. In early September 1975, Cserhat visited the corporate headquarters of Western, after being introduced to the Company’s president, H. E. Childs, for a $2,500 monthly fee to be paid to Heine Fishbein. After three or four months, however, the agreement was canceled.
It's the SEC's contention, based largely on the information of COURI, who says he got it from Gilbert, that at a dinner meeting in early November the following took place. Streicher and Cserhat told Gilbert that if he took a big position in the Western, Streicher would by some Conrac shares and so too would Western's pension fund.
On November 4, 1975, an 8,000 share block in Conrac crossed on the New York Stock Exchange tape. COURI says that Gilbert told him that the block was bought by Streicher and that he Gilbert had been the seller. The SEC says that Streicher did by 8,000 shares on that day, plus another 2, 000 shares. “The seller is of the shares to Streicher,” Glusband charges, “were ‘Gilbert group’ accounts, Municipal and Dudley.”
That same day, the SEC alleges the "Gilbert group" accounts purchased 25,200 shares of Western, or over 60% of the sessions total volume in Western. On Nov. 5, the Commission adds, Streicher and an associate each purchase 2,000 shares of Conrac. The 4,000 shares were sold by Bank De L’Union and a Gilbert trust through Cserhat at Heine Fishbein.
Revson relates that at a meeting with Gilbert and COURI, he was told about Western. Gilbert, states Revson, “said he thought it was good stock because there was a large short position in that stock, and if the stock rose a few points, the ‘shorts’ would have to start covering and the price of the stock would increase further and that he was going to buy a large block of Western.”
Revson says he was urged to buy 25,000 shares of Western, and he agreed. To pay for the stock, arrangements were made for him to sell 4,000 shares of Revlon (which he had inherited) at 75 through Hein Fishbein, “where I would get the price I wanted, and I could take advantage of the favorable commission rate Gilbert enjoyed.” Revson says COURI ended up buying 24,000 shares of Western for him which Revson subsequently sold at a $50,000 loss.
Between Nov. 5 and Nov. 11, 1975, there were four trading dates. In that stretch, the SEC says, the Gilbert group and COURI-Revson subgroup purchased 90,600 shares of Western, including a 20,000 share cross between Gilbert and the Bank De L’Union, handled by Cserhat. During that span, moreover, the stock ran up from 13 1/2 to 16. COURI quotes Gilbert as saying that Streicher had said that if “we break it (Western) out above 16 1/2, it is going to 19.” Streicher has denied making any such statement. Western Company officials confirm that Cserhat did try to interest their pension fund in buying Conrac. However, after studying material the brokers sent they discarded the idea. Meanwhile Gilbert, Glusband alleges, told COURI that he and Revson must purchase approximately 40,000 shares of Conrac from him. So that he, Gilbert, could bridge himself.” That was in late November, and shortly thereafter COURI's money began to run out.
Contacted by telephone, Cserhat declined an interview. I'm just an outside broker, who was dragged in,” he insists.” It leaves a bad taste, I'd rather not talk about it.” Streicher, in a 17 page affidavit refuting the SEC affidavit in detail, states: “I unequivocally denied ever discussing negotiating or agreeing to purchase, or in fact, purchasing, any Conrac shares pursuant to any arrangement or understanding with any of the defendants in this action. I further denied ever instructing or devising any of the defendants with respect to purchasing Western shares for any purpose, much less in order to inflate their market price.” Streicher's attorney, Steven S. Steinberg, of Reavis & McGrath, refused comment, nor would he allow his client to answer questions.
Shortly after Thanksgiving in 1975, which both Cserhat and Gilbert spent in Aspen, COURI relates that he was told by Gilbert that a Swiss bank or friend would be arriving soon to purchase 150,000 shares of Conrac. The Swiss, identified as Theodore Arnold, advised him that he could not buy the shares. Instead, according to COURI, Arnold proposed that Gilbert, Revson and COURI sell their Conrac shares from their margin accounts, and that they would be purchased on their behalf via a special omnibus account Arnold's firm, Axioma A.G., would open at a brokerage office in Chicago.
Towards that end, says COURI, Gilbert gave Arnold 25,000 in cash to open the account. As part of this scheme, according to COURI, Arnold would furnish confirmation of losses from fictitious purchasers of straddles in precious metals. This would create the appearance of a legitimate basis for issuing checks to Axioma, which actually would use the money to buy Conrac. The bogus commodity buy and sell orders could be used for US tax losses. The plan, however, never was put into effect.
Rich in detail, the SEC's case versus Gilbert et al., nonetheless, has slowed to a crawl. Thus far, five individuals noticed for deposition -- Gilbert, Revson, Kerschner, Dudley and one E. Herring Chandor --- have refused to testify, an SEC official says, COURI similarly pleaded the Fifth Amendment privilege against self-incrimination when he was to be deposed by Gilbert's attorney, Peter Fleming.
Criminal Investigation
One obvious reason for the lack of movement by the SEC, is that the Justice Department has been pursuing possible criminal aspects of the alleged manipulation. In fact, Streicher has sought -- and won from a federal magistrate -- a protective order staying discovery proceedings against him by the SEC until parallel criminal proceedings are ended. His contention: were he forced to invoke the Fifth Amendment before the SEC, an adverse inference could be drawn in a civil action which could ultimately lead to a permanent injunction and possibly the end of his professional career.
The SEC has appealed the decision to the federal judge handling its action, and he has yet to hand down a decision. Attorneys familiar with the case say that whichever way the ruling goes, it probably will wind up in the U.S. Court of Appeals, thereby assuring further delay.
In moving for the protective order, Streicher's attorney disclosed that he had been notified that Streicher is a target of the U.S. Attorney's ongoing criminal investigation and that he may be indicted on criminal charges for his role in the alleged stock manipulation. Among the records subpoenaed by the grand jury, Barron’s has learned, are checks and deposit slips of the account of Streicher and Dorothy B. Streicher at the Chemical Bank dating back to July 1994. Meanwhile, Streicher is still doing business at the same old post.
And John Revson is still at Revlon. Cserhat is still a member in good standing of the New York Stock Exchange firm, buying and selling securities for customers.
As for Edward Gilbert, mum’s the word. Through his attorney he authorized the following statement: “Mr. Gilbert has denied the allegations contained in the SEC's complaint. No further comment is appropriate since the matter is still before the Court.”
END
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