Probes, Huge Client Losses Beset Broker Jay Goldinger

For sheer brashness, it’s hard to top what investment broker S. Jay Goldinger did the day his horse Putting won the seventh race at Hollywood Park.

Invited into the winner’s circle for a celebratory photograph, Goldinger arrived bearing a “for sale” sign to hang on the horse--earning him a dressing-down from track stewards.

But Goldinger was never one to let conventional notions of decorum or prudence cramp his style. Having warned readers in an investment guidebook he wrote that options on treasury futures are a casino game in which “you are likely to lose 100% of your money three out of four times,” Goldinger made precisely that play with as much as $100 million of his investors’ money, producing devastating losses that may top $80 million.

Those losses prompted Goldinger, 42, last week to close his Beverly Hills-based Capital Insight investment firm amid investigations by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission. A complaint to law enforcement authorities is also being considered by at least one aggrieved investor.

Moreover, the first of what is certain to be a landslide of civil lawsuits was served on Goldinger’s attorneys Thursday. That suit, filed in Los Angeles Superior Court by investors Michael and Linda Blumenfeld of New York, claims $4.8 million in losses and alleges misrepresentation, breach of fiduciary duty and the charging of excessive commissions by Goldinger.

Goldinger remained unavailable for comment Thursday.

Goldinger’s financial unraveling has spilled over into his acrimonious divorce case. This week he filed an application in Los Angeles Superior Court to sharply pare the $21,000 monthly he pays in alimony and child support to his ex-wife, Janice, with whom he shares custody of a 3-year-old daughter.

The application was made on the grounds that his annual income, which he stipulated at more than $1 million when the settlement was reached, has dropped to close to zero, according to Alexandra Leichter, his divorce lawyer.

Thus far, three publicly traded companies have disclosed Goldinger-related losses totaling nearly $50 million: Fort Worth-based Pier 1 Imports, which lost $20 million; Tustin-based PairGain Technologies, which lost $15.9 million, and San Diego-based Triton Group, whose predecessor company Intermark lost $10 million in 1989-90.

The pattern of all three debacles was essentially the same. As reconstructed through interviews with sources close to those companies and with other investors, the facts reveal Goldinger as a man who built his empire on brashness, a talent for networking and the blind faith of his most devoted customers.

Many of the losses appear to have been generated through futures and options speculations too complex for the average investor to understand without Goldinger’s help.

“After hearing it over and over again, I thought I understood it,” said one financial professional familiar with an investor’s account. “And as soon as he stopped talking I forgot it all again.”

A West Coast financier who once was asked to analyze a series of money-losing trades that Goldinger had executed for one of his corporate clients said: “I could detect no consistent strategy--just a lot of speculation.” The company had been assured that the trades were “hedged”--a risk-reducing technique--but the financier said he could see no evidence of hedging.

The transactions all were in futures and options on Treasury securities--essentially highly leveraged and risky bets on the direction of interest rates. Over the last year, Goldinger’s apparent strategy of selling treasury futures and options short--a bet that bond prices would decline and interest rates rise--fell afoul of a record-breaking trend in the opposite direction.

In PairGain’s case, the company says its internal investigation indicates that Goldinger went on pursuing the complex strategy--for a time endorsed by the corporate management--even after the company specifically told him to stop.

That occurred after 1994, when changes in federal financial reporting rules required much more onerous reporting of certain futures and options trades by public companies. Goldinger was then instructed to limit himself to straight purchases of treasury securities, the company says. PairGain says it learned six months later that he had gone back to the old trading against its instructions.

PairGain instructed him to close out those investments. “But then he comes at Thanksgiving and says, ‘No can do, we’ve lost $16 million,”’ said Robert Hoff, the PairGain director heading its internal probe.

In fact, most clients had paperwork in hand that might have given them a clue to Goldinger’s activities, in the form of regular transaction statements from Refco Inc., the Chicago futures firm that handled the Goldinger-ordered futures and options trades in their accounts.

Clients, however, say Goldinger encouraged them to ignore those statements in favor of “summary” statements he mailed out on an irregular schedule.

“He always said his statement was more accurate than theirs,” said one client. “He said, ‘Put theirs in a file and pay attention to mine.’ ”

That was also Goldinger’s pitch to PairGain. “There were voluminous, detailed statements from Refco, but the summary statements which you rely on were from Capital Insight,” said Charles McBrayer, the company’s chief financial officer.

Whether Goldinger’s statements misrepresented the nature of the clients’ holdings may be one focus of the regulatory agencies’ inquiries.

Also at issue, as the Blumenfeld lawsuit suggests, is whether Goldinger racked up excessive commissions by overtrading in the accounts.

PairGain’s McBrayer said Thursday that the commission rate Goldinger charged was “ordinary [but] the amount of trades was extraordinary.”

Another financial expert familiar with an investor’s account said that investor ended up paying Goldinger $1.5 million in commissions on trading that netted a loss of $10 million.

For all that, Goldinger long attracted a wealthy and influential clientele by projecting the air of a guy who couldn’t lose.

In the late 1980s, when basketball’s Lakers were the hottest act in town, Goldinger would flash a handful of playoff tickets. During the racing season at fashionable Del Mar, Goldinger would rent an oceanfront house near the track and commute to Beverly Hills by helicopter. He once owned the minor league Salinas Spurs baseball team (until he sold it to the brother of former Kansas City star George Brett).

By always having a comment ready when a reporter called, Goldinger turned himself into one of the most frequently quoted analysts of the bond markets. Associates say he collected clippings of articles mentioning him and used them to bolster his legitimacy when trying to land new investment clients.

In addition to cultivating contacts in the press, he ran regular investment seminars that sometimes led to new clients. He pursued leads relentlessly. Charles R. “Red” Scott, former chief executive of Intermark, the predecessor company to Triton Group, apparently began that firm’s relationship with Goldinger, whom he may have met through their joint membership in the Young President’s Organization, a Southern California club of young executives.

Scott, who also is a director of Pier 1 Inc., may have provided the link that got Goldinger involved with that firm, resulting in a $20-million loss to the company.

Reached by phone this week, Scott said “the lawyers have told me to say nothing to anybody. . . . This thing has been blown up out of all proportion and I don’t want to have any comment.”

Times staff writer Greg Miller in Orange County contributed to this story.