ÖCheckFundManager.com Background Investigation Executive Summary Case Study #3
JACK GERSTEIN (The case is
real, the names have been changed)
GERSTEIN
PARTNERS
New
York, NY 10011
Personal
Data Summary
Jack is 43
years old, married to Jane (Levy) Gerstein, and owns property in both
Westchester and Boca Raton, FL. He is a
generous benefactor of the San Diego zoo.
He holds a B.S. degree from Penn State University. In spite of a relatively stable personal
life, his professional career has been riveted with controversy. In 1991 the Commodity Futures
Trading Commission levied a
fine of $150,000 against him and suspended his trading privileges after he was charged with cheating,
bucketing and registering false sales.
In 1994 his
company, the Gerstein Partners were involved in a takeover of a clothing retail
chain called Bob’s. Their stated intention was to find a buyer for the company
and protect shareholder equity. After
they were voted in, the shareholders filed suit, claiming that Jack Gerstein
forced a takeover under false pretenses.
They claim he did not seek a buyer, but rather gave himself and his
associates huge salaries. The stock
valuation consequently plummeted in half, further fueling the outrage of the
shareholders. After gaining control of
the board, Gerstein never bought stock back from the shareholders as promised
at $27/share. 12 Federal suits were filed.
Media Releases
Here are some of the
details of the trading suspension:
The complaint alleged that on 11 occasions between April 1, 1987, and April 29, 1987, and on
two occasions in October 1987, Gerstein, while trading for his own account, noncompetitively executed
trades in silver futures opposite a Comex floor broker. As a result, the floor broker was able to
take indirectly the opposite side of his customer's orders, to offset improperly one customer order
against another, or otherwise execute customer orders noncompetitively. The complaint also charged
that in one noncompetitive transaction, Gerstein passed money to the broker through a trade loss.
The complaint also alleged that by engaging in the noncompetitive transactions,
Gerstein aided and abetted the floor broker to defraud or attempt to defraud his customers, to
deceive or attempt to deceive his customers, and to bucket his customer's orders or
fill those orders by offset. Gerstein was also charged with making
false reports regarding his futures transactions, wash sales, fictitious sales, accomodation trades, and
causing non bona fide prices to be reported.
The settlement accepted by the Commission provides that Gerstein, without admitting or denying the
allegations in the complaint, consents to the Commission order finding that he violated the
Commodity Exchange Act and Commission regulations as alleged in the complaint.
The Commission also ordered Gerstein to cease and desist from further such violations, revoked
his floor broker registration, and directed him to comply with his undertaking not to reapply for
registration with the Commission as a floor broker for six years, or in any other capacity for five years. In addition, the Commission ordered Gerstein not to trade at all for one year, and two years thereafter. Gerstein may only trade from off the floor of an exchange through duly authorized brokers. Finally, the Commission ordered Gerstein to pay a civil penalty of
$150,000.
Here is a short excerpt from class action
suit:
The Gerstein Proposal
of the $25/$27 per share offer in an auction for Bobs and publicly disseminated many times
as discussed herein, was intentionally false and misleading when made or
recklessly made with indifference to the truth, or negligently made in that
each of the statements was intended to, and did, lead the reasonable
shareholder to believe that Gerstein had committed to auction Bobs to the
highest bidder, with its own bid of $27 per share to serve as the minimum bid.
Thus, plaintiffs and the Class were deceived into believing that a vote for the
Gerstein Nominees was a vote for a minimum of a $27 per share offer for their
Bobs’ Shares. Similarly, all persons or entities who purchased the securities
of Bobs during the Class Period, as defined below, were deceived into believing
that Gerstein would follow through with his publicly stated commitment to
proceed to offer the shareholders at least $27 per share following Gerstein’s
taking control of the Company. As further and more particularly discussed
below, Gerstein failed to timely reveal, if ever, the following material
information necessary to make the Gerstein statements not misleading…