NEW YORK - WR Lazard & Co.'s chief investment officer, Phoebe Zaslove, has resigned, unraveling the restructuring of its money management business.
The minority-owned firm announced in February it had bought Ms. Zaslove's domestic and international equity management firm, Pecksland Associates of Greenwich, Conn., as part of a strategy to pair it with WR Lazard's low-margin structured fixed-income money management operation.
But WR Lazard apparently did not have enough money to close the deal and fired all of Ms. Zaslove's team shortly after the transaction closed, said a former Pecksland official.
Ms. Zaslove resigned; her money management firm and clients are gone. In addition, sources said Ms. Zaslove filed a complaint against WR Lazard with the National Association of Securities Dealers, claiming inadequate financial disclosure.
"Once the transaction was completed and I was involved, our philosophical approaches to the business were at polar opposites," said Ms. Zaslove. "I resigned as of April 9." Ms. Zaslove declined further comment.
WR Lazard Chairwoman Betty Lazard referred questions to Marianne Camille Spraggins, the firms's president and chief executive officer. Ms. Spraggins was traveling and could not be reached.
The NASD neither confirms nor denies a complaint has been filed with it, said a spokesman.
Earlier, Larry Jones, Ms. Zaslove's predecessor as equity portfolio manager, filed a lawsuit against the company alleging he is owed almost $188,000 in back pay. Mr. Jones also is seeking $2.5 million in punitive damages.
Mr. Jones declined to comment on the suit. He is now executive vice president and senior portfolio manager at Kenwood Group, a Chicago-based money manager. The ongoing suit was filed in a New York state supreme court. In its response, WR Lazard denied all charges.
The recent developments are the latest of several problems to befall WR Lazard & Co., once one of the largest minority-owned money management firms. The firm listed total assets of $1.2 billion as of Jan. 1. At its peak three years ago, the firm had $2.7 billion under management.
The money manager's fortunes have trended down like a bear market chart since the cocaine-induced death of founder and Chairman Wardell Lazard in 1994.
The latest turmoil already has led one pension fund to terminate the firm.
The $450 million pension fund of the Hampton Roads Shipping Association-International Longshoremen's Association, Norfolk, Va., took back $59 million WR Lazard managed for it in a balanced portfolio.
A fund official who asked not to be named said Ms. Zaslove's resignation and her replacement with an equity manager with whom WR Lazard had subcontracted were among the reasons the Longshoremen terminated the firm.
Another client, the $45 billion New York City Employees' Retirement System had asked WR Lazard executives to have an audit performed to assess its financial health. Jon Lukomnik, assistant city comptroller, said the audit was performed, but he declined to discuss it.
Mr. Lukomnik did say WR Lazard still is one of NYCERS' fixed-income money managers and has performed well.
Equity management, a small portion of WR Lazard's business, was considered to be a core part of the firm's plans to enter higher margin lines of business. The firm had just $67 million in equities under management as of Jan. 1.
When Ms. Spraggins announced the Pecksland acquisition, she said Ms. Zaslove's firm would be merged into a new entity, WR Lazard Asset Management, Boston. Ms. Zaslove would be chief executive of that firm, responsible for equity management.
Pecksland managed about $192 million in domestic and international equities at the time of the acquisition.
At the time, Ms. Spraggins said the merger created a good platform for growth; Ms. Zaslove said it created several immediate opportunities to expand WR Lazard's business by offering new products to existing clients.
But the deal fell apart in April, less than one month after Ms. Spraggins and Ms. Lazard introduced Ms. Zaslove and her team to clients as the new direction WR Lazard was taking in asset management.
Claire Walton, a former Pecksland investment executive, said a lack of money scuttled the deal.
"They (WR Lazard) didn't have the resources to complete the deal," said Ms. Walton. "They had bad cash problems.
"I don't think they did the deal in bad faith," said Ms. Walton. "The cash situation deteriorated very rapidly since the beginning of the year."
Much of the new company's success hinged on anticipated revenue from selling research that a Pecksland broker/dealer affiliate would have generated. But the core of WR Lazard's broker/dealer sales force quit, according to Ms. Walton. Even if the sales force were intact, it would have taken some time to train them about the product, she said.
"There were expectations of revenues that were supposed to happen sooner with the broker/dealer," said Ms. Walton. "It would have been six or nine months before we generated enough revenue to keep the thing going.
"They (WR Lazard) fired her entire team, including myself, and Phoebe resigned."
Ms. Walton retained a business, Walton Investments, New York, which consults on trading. She has returned to that role.
Ms. Walton said she understands Ms. Spraggins' decisions, doesn't take the firing personally and still admires her business acumen.
"I'm not sure I disagree with the decision," she said "It was 80% correct.
"The bottom line is they didn't have the resources to complete the deal," said Ms. Walton. "Did they know it beforehand? I don't know."
Mr. Jones' suit is another potential drag on WR Lazard's financial health.
In his complaint filed in December 1995, he alleged the late Mr. Lazard induced him to leave a secure position as a portfolio manager and director of investment research at Equitable Life Assurance Co. in 1992 with the promise of a $200,000 base salary, a bonus and the chance to earn an equity stake in the firm.
Mr. Jones said in his complaint that two years after joining the firm, he learned "that a certain loan covenant existed which precluded him from receiving an equity interest in the firm."
Mr. Jones has alleged fraud, negligent misrepresentation and breach of contract.
The recent developments at WR Lazard also call into question the status of a secured demand loan, estimated to be between $250,000 and $500,000, that Prudential Securities Inc., New York, was supposed to make to the firm.
Susan Atran, a Prudential Securities spokeswoman, confirmed the firm plans to lend "a substantial amount of money" to WR Lazard. "We are very supportive of the firm," she said.
