Some of Alan B. Bond's pension fund clients -- among them the city of Kansas City, Mo.; New Haven (Conn.) Police & Fire Retirement System; and the Ohio Police and Fire Disability Pension Fund -- are a little luckier than others.
These plans terminated his firm, now called Albriond Management Capital LLC, New York, for performance reasons in 1998, before the U.S. Attorney's Office and the Securities and Exchange Commission charged Mr. Bond with fraud in December this year.
They were still victims, however, of Mr. Bond's alleged fraudulent activities that, the authorities charge, took the form of brokerage commission kickbacks on pension fund stock trades made between 1993 and the end of 1998 at his old firm, Bond, Procope Capital Management, New York.
Others, like the Washington Metropolitan Area Transit Authority's $2 billion union plan, terminated a $200 million large-capitalization growth mandate managed by Mr. Bond in August, after officials were contacted by federal authorities and asked to aid in the investigation of Mr. Bond, said Ray Feldman, a spokesman for the transit authority.
Among the pension funds identified by authorities as victims in Mr. Bond's alleged soft-dollar and commission kickback schemes are: National Basketball Association Players' Pension Plan; Southeastern Pennsylvania Transit Authority; City University of New York Investment Pool; United Food and Commercial Workers Local 888; and the Ohio Police and Firemen's board.
Mr. Bond faces criminal charges from the U.S. Attorney's Office and civil charges in a complaint by the Securities and Exchange Commission.
Mr. Bond and a broker colleague, Robert I. Spruill, set up a scheme whereby Mr. Bond received more than $6.9 million in kickbacks on commissions on trades he directed to three brokerage firms, according to the court filings of the SEC and the U.S. Attorney's Office.
Even if Mr. Bond is acquitted of the charges, observers said his money management business, now called Albriond Management Capital LLC, New York, is unlikely to survive.
"It's really tough for small firms when scandal hits. When the reputation of the principal suffers, when that reputation is larger than the firm itself, it's impending doom. . . . This is serious stuff. This is stealing from clients," said Christopher J. Acito, managing director at BARRA Strategic Consulting Services, Darien, Conn.
In all, Mr. Bond managed about $600 million at the end of 1998 for 25 clients -- eight high-net-worth and the remainder institutional investors, said people familiar with Mr. Bond's client list.
Big client pulls plug
While the SEC and U.S. Attorney's filings do not specify a total, there are repeated references to "hundreds of thousands of dollars" clients paid in markups on brokerage fees.
If convicted on 11 counts of criminal fraud, Mr. Bond faces up to 55 years in prison.
John Siffert, Mr. Bond's attorney, said his client will plead not guilty and will contest the charges against him. An arraignment date is being negotiated for early January, he said.
Mr. Bond, in a written statement, said, "I look forward to vindicating my good name when I have the opportunity to respond in court. I intend to try this case in court and not in the press."
Mr. Bond bought out his business partners, John and Ernesta Procope, in December 1998 after seven years in business as Bond, Procope Capital Management and renamed the firm Albriond. Ms. Procope did not return calls seeking comment.
Because Mr. Bond employed a momentum strategy, some observers said, trading abuses would be difficult to detect.
"Alan's style was ideal for this kind of thing. He was buying high momentum growth stocks on a daily basis and prices were moving so fast. With this style, high portfolio turnover (that generated a lot of commission traffic) would not necessarily be anything to worry about," said one money manager familiar with Mr. Bond's investment style, who preferred to remain anonymous.
As for plan sponsors catching on, soft dollars and directed brokerage activities are a "very intricate area for plan sponsors . . . an area of potential abuse. Many plan sponsors need a professional investment management consultant to help evaluate stock execution, soft dollars and directed brokerage," said Barry Slevin, an attorney at Slevin and Hart in Washington. His firm is legal counsel for Washington Metro Transit.
But the traditional pension consulting community has been slow to come up to speed in the area of brokerage evaluation, said John McClenahan, director of manager research at Ennis, Knupp & Associates Inc., Chicago.
Meanwhile, Bond, Procope's investment returns were substandard for several years, observers noted.
Bond, Procope and its successor firm, Albriond, have not reported investment returns to Pensions & Investments' Performance Evaluation Report for Mr. Bond's large-cap growth strategy since the end of 1997. That strategy had a composite 29.1% return for calendar 1997, placing it in PIPER's seventh decile; 1996's one-year return of 22.3% placed it in the sixth decile; the 1995 return, 27.5%, was poor enough to drop it into the ninth decile; 1994's return of -8.8% placed it in the 10th (worst) decile for the year; and in 1993, Mr. Bond's -5.4% return also had the strategy in the 10th decile ranking among peer strategies.
Trustees of the $600 million defined benefit plan for public employees' within the Kansas City retirement system terminated Bond, Propcope in September 1998, purely for performance reasons, said Richard G. Boersma, executive officer. The fund and its trustees and staff have no specific knowledge of Mr. Bond's alleged activities.
Mr. Boersma said to his knowledge, the fund's assets weren't affected by the alleged wrongdoing.
The $240 million defined benefit plan of the New Haven Police & Firemen terminated Bond, Procope in May 1998 because the firm went on watch for poor performance and did not pull itself out of the slump, said Gwendolyn Bell, fund administrator. "We check the trade execution summaries regularly and had no reason to think there was anything wrong," Ms. Bell said.
The New Haven fund was named by federal authorities as one of the alleged victims. Trustees are waiting to see what happens in court and don't plan to take any separate action at this time, Ms. Bell said.
The New York-based National Basketball League's Player's Fund also was affected, according to the court filings, but Mr. Bond managed only about 10% of the fund's $100 million in assets, said Jeffrey Mishkin, executive vice president and chief legal officer.
While NBA officials also don't plan to take independent legal action, "I cannot say that we won't take action in the meantime as we await the outcome of the trials," Mr. Mishkin said.
The $560 million defined benefit plan for union hourly workers of the Metropolitan Atlanta Rapid Transit hired Albriond in September to manage $20 million in midcap domestic stocks, only to terminate the account in October.
Bond, Propcope's status as a minority-owned money manager made some funds reluctant to fire it for poor performance, said one observer, who declined to be identified.
Progress Investment Management Co., San Francisco, a manager of managers specializing in minority firms, included Bond, Procope in its roster until 1993, when the account was terminated for performance reasons. Mr. Bond's return numbers haven't been good enough to keep Bond, Propcope or Albriond on the list of the 50 or so firms that Progress tracks, said Clayton C. Jue Sr., chief investment officer.
Mr. Bond's lavish generosity undoubtedly endeared him to some plan trustees.
According to the SEC's civil suit, Mr. Bond allegedly used some of the $6.9 million he received in kickbacks to gain the goodwill of plan trustees, like James Thomas of Washington Metro Transit's union plan, Local 689. Mr. Bond allegedly presented Mr. Thomas with at least $15,000 in gifts and non-pension fund-related services. The chairman of the board of trustees for the Metro plan didn't return calls regarding the alleged gifts.
Mr. Bond or the dummy corporations set up to bank the kickbacks also allegedly paid at least $46,000 to a trustee of UFCW Local 888, and a board member of the Ohio Highway Patrol received at least $79,000, according to the SEC's court filing.
At least one consultant to some of the funds named as Mr. Bond's alleged victims said it was unaware of Mr. Bond's trading activities. Officials of Segal Advisors, New York, said in a statement that "prior to becoming aware of the investigation into Mr. Bond's activities, Segal Advisors had no knowledge of Mr. Bond's illegal activities." Segal is the consultant to the Washington Metro Transit fund, and the players' fund of the National Basketball League.
The $17 billion Ohio Bureau of Workers Compensation, Columbus, is keeping an eye on the situation, but is not contemplating immediate termination of Albriond, said Robert Cowman, chief investment officer.
The fund hired Bond, Propcope in mid-1998. Albriond runs $80 million for the fund in large-cap growth equities.