The Wall Street Journal(March 6, 2002)
Winncks Sister, a Broker, Pushed Global
By Craig Karmin
When Merrill Lynch & Co.s Susan Brody talked about Global Crossing, her clients listened.
And with good reason: Ms Brody isn’t just any broker – she is also the older sister of Global Crossing Chairman Gary Winnick. Ms. Brody, 62 years old, often played up this family connection in discussions about investing in Global Crossing and an affiliate of the transcontinental fiber-optic firm during the past three years, according to some clients.
Now, some of those clients must wish they had never heard of the Winnick family. Global Crossing trades as a penny stock after the Bermuda-based company filed for Chapter 11 protection in a New York bankruptcy court in January. At its peak in February 2000, the stock hit more than $61. Yesterday, it traded down 0.7 cent, or 7.5%, to 8.6% cents on the OTC Bulletin Board, maintained by the National Association of Securities Dealers.
Consider Florence Platzer. The 67-year old widow from Hauppauge, N.Y., says Ms. Brody frequently boasted about her relationship with her brother and suggested that this relationship offered her unique insight into Global Crossing, even telling her that she was being offered special “friends and family” shares of Asia Global Crossing, an affiliate.
“She said, ‘You will make money, the stock will go up,?'” Ms. Platzer says. So Ms. Platzer says she and another family member invested in excess of $620,000 in Global Crossing and Asia Global Crossing from 1999 to 2001 – and have lost more than $250,000. “She said we were getting in at the ground floor,” recalls Ms. Platzer, who says she has known Ms. Brody since the 1970s when their children attended nursery school together.
Ms. Brody – who works in Merrill’s Bayside, Queens, office and has been an employee of the firm for 11 years – declined to discuss her clients and Global Crossing for this article, saying only: “I don’t want to have this conversation.”
Ms. Platzer is preparing to file an arbitration claim against Ms. Brody and Merill, according to her attorney Christine M. Bae, that will allege unauthorized trading, unsuitability and material misrepresentations pertaining to Ms. Brody’s purported statements regarding her knowledge of Global Crossing.
A broker since 1987, Ms. Brody previously worked at Lehman Brothers Holdings Inc., and has a clean disciplinary history, according to her brokerage records kept by the NASD. Merrill spokesman Joe Cohen said Ms. Brody and the firm declined to comment on whether she owned any Global Crossing shares herself or what if any guidelines she followed when trading the stock on behalf of clients.
For his part, Mr. Winnick says he “never had any discussions about the company with his sister,” according to Michael Sitrick, Mr. Winnick’s spokesman.
What is clear is that Merrill has had a good relationship with Global Crossing. The nation’s largest securities firm has been the lead manager or joint book runner for eight Global Crossing or Asia Global Crossing bond or stock deals totaling $5.6 billion, according to research firm Thomson Financial.
“Global Crossing was a highly rated stock by many firms and it was entirely appropriate for some investment portfolios,” Mr. Cohen said. “It is unfair to disparage a financial adviser because of her brother’s involvement in a company that was part of the recent technology, telecom stock retreat.”
Yet some financial specialists were surprised Ms. Brody didn’t recuse herselfr that Merrill didn’t insist on such a recusal – from selling shares in a company whose chairman was a close family member. “The last thing you want to do is give anyone the sense that you have an inside pipeline because you leave yourself open” to charges of conflict of interest, says Henry Hu, a corporate and securities law professor at the University of Texas in Austin. “To avoid that, she would have to pass on that trading business to another broker.”
Glenn Alpern, Ms. Brody’s hairstylist for the past decade and a client, also remembers the Merrill broker discussing Global Crossing when she stopped in the Cedarhurst, N.Y., salon where he works. “She told me it was her brother’s company,” Mr. Alpern says. “She thought it was a good buy.”
With that recommendation in mind, Mr. Alpern says he began to buy shares of Global Crossing over 12 months beginning in March 2000, right around the time the company’s stock and U.S. equity markets hit a peak. Although he bought a number of other technology shares, including Juniper Networks and Cisco Systems, he says he continued to add to his position in Global Crossing until he held 1,000 shares, the most of any company he owned.
“She kept selling me the stock, even as it went down, down, down,” Mr. Alpern asserts. When he says he decided to unload his Global Crossing holdings, after losing more than $25,000 of his $26,000 investment, he elected to put that money into shares of Asia Global Crossing, whose chairman is also Mr. Winnick, after a discussion with Ms. Brody. “She didn’t mention buying any other stock at the time,” he says. That investment also has foundered.
Meanwhile, Mr. Winnick sold nearly $735 million of Global Crossing shares from 1999 to last November, according to government filings. He has come under some criticism for the amount of money he made from Global Crossing that never managed to turn to profit.
In – and Out – on the Ground Floor
Global Crossing shares and Asia Global Crossing’s American depositary receipts closed yesterday down 99.9% and 96.8%, respectively, from their all-time highs.