When Kurt Karmin planned a party this spring to introduce potential board members to his firm’s existing directors, his mood seemed upbeat.
After all, Ira Kaufman, Karmin’s predecessor as head of the Chicago-based brokerage firm Rodman & Renshaw Capital Group Inc., had finally sold his stock and left the board. With that thorn removed from his side, Karmin now had a chance to recruit new allies to help realize his vision for Rodman.
But there was trouble ahead, trouble that would mushroom into yet another boardroom battle, trouble that has fascinated LaSalle Street all summer. And the ensuing contest for control of Rodman & Renshaw-the only publicly traded brokerage firm based in Chicago-has exposed an unattractive side of the company, one where personal vendettas, nepotism and sexual innuendo have become part of the corporate culture.
The tipoff to the newest problem was an honored guest who didn’t come to Karmin’s party.
Those attending dined on rack of lamb that Saturday evening at Karmin’s North Shore home. But Marshall Geller, a wealthy Los Angeles investor who had bought some of Kaufman’s shares, was missing.
Karmin told the guests Geller was ill, but Geller said later he declined the invitation because he had decided not to accept a board seat.
Geller, who once managed the Chicago office of Bear, Stearns & Co., is a director of Players International Inc., a riverboat casino operator, and he pays attention to niceties. “Would it be a nice thing to come to a party if I made a decision to not join the board?” he asked.
Founded in 1951, Rodman & Renshaw was a small Chicago firm that in the early years did business primarily with the Lake Forest friends of Clifford Rodman and Charles Renshaw. Although the pace of its business quickened over the years, it remained Midwestern in focus even after Kaufman took the reins.
Karmin, 65, a veteran of the legendary and now defunct Drexel Burnham Lambert Inc., hoped to turn Rodman into a smaller version of the international securities firm, according to former employees and directors. (He declined to be interviewed for this article except to answer questions about his personal background.)
He launched a major push into the commodity futures and options field, opening a financial futures office in London and an energy-futures operation in New York. He led the company into global finance, including joint ventures with an Austrian bank and a Czechoslovakian cooperative.
But the course he set has hardly been steady. In recent months, Rodman agreed to sell the London office, which is headed by one of Karmin’s sons. The Austrian venture is in limbo. The New York energy business, led by another Karmin son, has been shut down.
In Chicago, some current and former Rodman employees said they watched with growing dismay as the company became enmeshed in far-flung enterprises that didn’t appear to be profitable. Some observers arched their eyebrows at the involvement of Karmin’s sons and their friends.
At home, newly hired salesmen upstaged and upset the company’s traditionally staid retail stockbrokers by using aggressive cold-calling tactics to bring in business. The bond department developed a reputation as a hostile environment for women workers, one where only attractive women were welcome, but where the attentions paid them were not. After it was reported that three female employees had filed formal sexual-harassment charges against the firm, Rodman was nicknamed “Animal House” on the trading floors of some Chicago exchanges.
Shouting matches erupted in the boardroom. Factions supporting Karmin and Kaufman squared off; when problems arose, accusations were hurled about whose watch they had occurred on. Since last year, six of the company’s 15 directors have stepped down.
Meanwhile, under Karmin’s leadership, Rodman’s earnings have been lackluster at a time when many other regional brokerage firms have done well. The company’s stock is trading at less than two-thirds of the $13 a share at which it was initially sold to the public in 1986, though in recent days it hit a 52-week high of $8 as opposing parties-outsiders from both coasts-jockeyed for takeover position.
Since that gathering he didn’t attend, Geller has become Karmin’s biggest public critic and is trying to remove him from Rodman’s helm. In an apparent move to counter Geller’s attack, Rodman has enlisted the New York brokerage firm of Josephthal Ross & Lyon Inc. as a possible merger partner.
“It’s been kind of like a merry-go-round,” said veteran brokerage stock watcher Perrin Long, director of equity research at Detroit’s First of Michigan Corp.
In a letter to the Tribune, Rodman general counsel Gregory Quinlivan suggested that disgruntled former officials may be painting a distorted picture because “persons involved in prior decisions have a vested interest in how those decisions are portrayed in the media.”
Ambitious plans
There’s no dispute, however, that Rodman was a slow-paced local firm serving a generally upscale clientele when Kaufman, now 65, ascended to the top spot in 1968. Kaufman was a fixture in Chicago financial circles by the time he and then-president Bruce Young, who built up the company’s bond business, took Rodman public 18 years later.
In 1986, Rodman had chalked up an enviable record of profitability. But it stumbled badly after the public offering as it attempted to expand its investment banking operations. Its most visible flop was a private placement of stock for Mama Tish’s Enterprises Inc. Rodman in fall 1987 refunded $1.5 million to investors after discovering that the Italian-ice maker, which since has changed ownership, supplied inaccurate financial data.
“After 1986 they got too big for their britches,” said Long. “The success they had had went to their heads. They tried to become something they were not capable of doing.”
Kaufman hired Karmin as vice chairman in spring 1988 to expand Rodman’s retail brokerage business. Karmin had been senior vice president in charge of Midwest operations for Drexel and was known as a dynamic salesman.
Seemingly bursting with energy, Karmin immediately started to put his stamp on Rodman. Karmin described himself as a “young kid in a hurry” at age 60 in an interview with Crain’s Chicago Business.
Rodman quickly established a foothold in the futures business, snapping up seats on the Chicago Board of Trade and Chicago Mercantile Exchange and adding Frederick Uhlmann, who headed Drexel’s commodities operations in Chicago, as chief of Rodman’s futures operations. Karmin also recruited star salesmen from Drexel and other firms by paying high upfront bonuses-a practice previously shunned at Rodman-and granting loans.
Behind the scenes, he began wooing directors and key executives. Former Rodman officials say he suggested in private conversations that he would soon head the firm. “In the spring of 1988, it became a political soap opera,” said a former Rodman officer.
Karmin’s ambitions didn’t surprise colleagues at Freehling & Co. (now Cowen & Co.), where Karmin was a partner during the early 1970s. Karmin left that firm to join a predecessor of Drexel because “he wanted his name on the door,” said a former Freehling co-worker.
The internal schism at Rodman surfaced in fall 1988, when Young abruptly resigned. By the end of the following May, Karmin seemed to be on a collision course with Kaufman, who had enthusiastically brought Karmin into the firm. There was public disagreement about the reasons for Rodman’s first annual after-tax loss, with Kaufman blaming hefty expansion and Karmin attributing the red ink to trading exposure.
Karmin gained the upper hand in the boardroom battle by the end of 1989, becoming chief executive at that time and capturing the chairmanship five months later. Kaufman remained active as chairman emeritus and Rodman’s biggest shareholder.
Whether Kaufman waged a fierce battle for control of Rodman remains unclear. During 1989, he made millions on the sale of Exchange National Bank of Chicago, in which he owned the biggest stake. Associates speculate that the perpetually tan Kaufman may have begun to turn more of his attention to his yacht and his Florida home.
The Karmin years
Under Karmin, Rodman grew rapidly and made some winning moves. The number of employees has doubled since 1986, to more than 500. One of his recruits, Victor Chigas, developed a highly profitable business, known internally as the “Death Squad,” investing funds for cemeteries and funeral directors. Michael Stoken (one of three Rodman directors who left the firm in the spring) brought a booming money-management operation.
But the company was plagued by high-level turnover. Howard Silverman, who joined Rodman in 1987 as chief financial officer, left in 1991. Anthony Fratto, who had built the company’s public finance business, quit Rodman in 1990 and moved his operation to Hamilton Investments Inc. Frank Paul, hired after Fratto left to run Rodman’s municipal bond unit, parted ways with the company in March.
The efforts to beef up Rodman’s retail business also hit some snags. Rodman was forced to pay a National Association of Securities Dealers arbitration award of more than $94,000 to a Chicago-area client who charged broker Lester W. (Jay) Rodgers with unauthorized trading. Rodgers, one of the brokers hired with great fanfare after Karmin arrived, owed the firm more than $157,000 when he left in 1991, according to a suit against him filed by Rodman in Cook County Circuit Court.
Some of Rodman’s veteran brokers said they left because of boiler-room-type tactics used by new employees. “There was a lot of high-pressure stuff. The boardroom environment (where brokers work) was very unprofessional,” said Jim Novak, who quit Rodman in February. “The screaming was intolerable.”
Quinlivan, Rodman’s general counsel, said cold-calling accounts for only a small portion of Rodman’s new clients. “All securities boardrooms are very noisy,” he said.
Questions arose about the commodities operation, especially its overseas components. Commodities are a family tradition for Karmin, a native of Germany, whose father Max was in the stock and commodities brokerage business in Berlin before fleeing to Prague to escape Nazism and subsequently coming to the U.S. In the 1920s, Max Karmin did business with Frederick Uhlmann’s family firm, Uhlmann Grain Co.
Rodman’s commodities operations have recently accounted for the largest share of the firm’s revenues, but whether they have turned a profit is unclear because the company doesn’t usually disclose bottom lines for its various businesses.
However, in a quarterly filing with the Securities and Exchange Commission, Rodman said the overall commodities business was unprofitable for the first nine months of the company’s 1993 fiscal year, which ended in June. Former employees attributed the poor showing to high travel and entertainment expenses and an inadequate margin between commissions charged to customers and payouts to brokers.
Quinlivan said the company will report its fourth-quarter earnings in a few days. The quarter’s results, and those of the futures unit, were in the black, he said. But Rodman’s performance is expected to fall far short of last year, when it posted net income of $2 million, or 46 cents a share. For the first nine months of this fiscal year, Rodman earned $631,000, or 14 cents a share.
It’s unclear whether the quarter’s results will include the July 1 agreement to sell Rodman’s London unit to a French banking firm and the July 21 sale of its Chicago Stock Exchange specialist operation. Karmin’s son Kenneth, who headed the London operation, and another son, Peter, are expected to join the French bank, Credit Agricole, when that sale closes. Quinlivan wouldn’t commment on rumors that Kenneth will receive a fee for the sale of the London office.
A third Karmin son, Philip, who had headed the New York energy-futures operation, is now working with Karmin in Chicago, Quinlivan said. A son of Rodman president Norman Mains worked for the firm overseas but is no longer with Rodman.
The number of family members in controversial ventures contributed to the perception of favoritism among some employees. “Kurt saw the family first and the bottom-line operational losses second,” said one former worker who is now on the East Coast.
Karmin on occasion talked about changing the name of the firm. When the company turned 40 in 1991, one employee suggested that it hang banners along LaSalle Street celebrating the event. But Karmin dismissed the idea because putting the names “Rodman” and “Renshaw” on display wouldn’t show who was running things now.
Some employees said they were told upon joining Rodman not to talk to Kaufman. The internal strain spilled beyond the company’s offices in the former Exchange National Bank building and into gossip sessions at suburban country clubs.
What’s next
With the announcement last week that Rodman has selected an investment banker to advise it on the merger proposal from Josephthal and any other offers, the future is uncertain for Karmin and the company he heads.
Marshall Geller, who now owns 9.99 percent, believes he had struck a deal. After a five-hour meeting in his quarters at the Hyatt Regency Suites with Karmin and Steve Rothstein, the Rodman official who had originally lined him up as an investor, Geller said, he believed he would take charge of the company-along with voting rights for the 11 percent of Rodman shares owned by the Karmin family.
But that purported deal fell through. Geller, who says he is disenchanted with management’s indecisiveness, has changed from white knight to challenger. Josephthal, which has been on a buying binge in the last two weeks and currently holds 8.57 percent of Rodman’s stock, says its own intentions are friendly toward the Karmin regime.
Meanwhile, Ira Kaufman remains at Rodman, handling brokerage business for customers. He still occupies a wood-paneled corner office, which is grander than Karmin’s and said by associates of both men to be one of the many bones of contention between them. “I happen to have done it (the office) myself,” said Kaufman.
In a phone interview he acknowledged that he’s no longer involved in management affairs, but current and former Rodman workers say he keeps close tabs on the news of Karmin’s woes.
Why is Kaufman still ensconced at Rodman, after selling his shares and leaving the board? “I’m rather comfortable,” he said.
