At least somebody did the right thing at Baltimore stock brokerage Ferris Baker Watts. As rogue broker Stephen Glantz and his client, Ponzi schemer David Dadante, defrauded investors out of millions, Patricia Centeno tried to intervene.
Over and over, she warned management about Glantz's shenanigans, only to be ignored, yelled at or compared to a Nazi, according to newly available regulatory documents. Unable to make anybody listen, she resigned. In her exit interview, Centeno told firm patriarch George Ferris that Glantz was "out of control" and that Dadante's fund was going to "blow up" on the firm.
Still, nothing happened — until more than a year later, when she was proved correct in every respect. The Glantz debacle led to the sale of the century-old brokerage to RBC Dain Rauscher in 2008.
In an industry demonstrably populated with sleazebags, shirkers and Sergeant Schultzes, Centeno's story is a rare tale of integrity and duty. It's also a cautionary one and relevant for financial reformers in Washington.
In the end, Centeno couldn't make a difference. As Wall Street fights regulations that would hold stockbrokers to a higher standard and give people like her more power, should we really let them go back to business as usual?
The following account is based on information in a decision delivered last week in the civil case of Theodore W. Urban, Centeno's boss. Urban was one of several top Ferris officials alleged by regulators to have failed in supervising Glantz. Administrative Law Judge Brenda P. Murray exonerated Urban, but her decision paints a vivid portrait of companywide dysfunction and special treatment for an employee who generated huge profits by breaking the rules.
Centeno was the chief compliance officer at Ferris, charged with ensuring that the firm obeyed the law and didn't abuse clients. She was suspicious of Glantz almost immediately.
Ferris had hired him at the beginning of 2003 with an $800,000 signing bonus, an indication of his value as a rainmaker. He would be in the top 5 percent of the firm's commission generators throughout his time at the company.
After only a few weeks, Centeno caught him in a lie when she learned that he really didn't have power of attorney over his wife's assets as he claimed. This guy looks like trouble, Centeno told top firm officials.
A few months later, Centeno's office sent a detailed memo to top Ferris officials, including CEO Roger Calvert. Dadante and other Glantz clients were trading heavily in the stock of a little company called Innotrac, using millions in borrowed money, the memo said. Based in Ohio, Dadante ran an investment scheme called the IPOF Fund, which eventually collapsed after cheating clients out of tens of millions of dollars. Like Glantz, he later went to prison.
Centeno's memo said there was a breakdown in the supervision of Glantz. He had helped Dadante rack up a huge ownership in Innotrac, an order-processing and logistics company, and hadn't disclosed the stake to regulators. And Glantz was buying risky, inappropriate stocks for widows and retirees. Something had to be done.
In response, Vice Chairman Louis J. Akers "yelled and screamed and was abusive," according to Centeno's recollection, as described by the judge. The firm put a few minor restrictions on Glantz and Dadante.
That summer, Centeno told top officials that "Glantz was a disaster waiting to happen," according to the decision. She suspected he had drug and gambling problems, which turned out to be true. In August she told her boss, Urban, that Glantz and Dadante were increasing the risk to Ferris and jeopardizing her own career, since she bore partial responsibility for their behavior.
In January, top officials found that Dadante's fund had borrowed more than $16 million from the firm, using volatile stocks as collateral. The next month, they learned that Dadante had started buying Innotrac stock through another brokerage after Ferris had restricted him — new evidence that he was manipulating the shares.
By April, Centeno was gone, in part because Akers, who was also head of the retail brokerage operation, "undermined every compliance effort she undertook," according to the judge's account. She took one last opportunity to warn firm Chairman George Ferris on the way out.
And so it went. Glantz left the firm at the end of 2005, but the damage had been done. Dadante's Ponzi scheme collapsed. Ferris had enabled him in ripping off small investors. Ferris eventually had to pay more than $8 million to Glantz's and Dadante's victims. In 2007, Glantz was sentenced to 33 months in federal prison after pleading guilty to securities fraud.
Judge Murray portrays Akers as a bully and CEO Calvert as a yes man, both turning a blind eye to Glantz because of the big money he made for the firm. Akers once described Centeno as "a member of Hitler's Third Reich," the judge wrote. And he overruled Urban when he wanted to fire Glantz in late 2004.
"If people want to say I was the bogeyman, that's fine," Akers said in an interview. "But somehow when I was there, the firm really prospered." However, he said, "I take full responsibility. I could have kept a closer watch on Steve Glantz."
The Securities and Exchange Commission fined Akers $75,000 and banned him from acting as a brokerage supervisor for a year.
George Ferris died in 2008. Calvert, for his part, says the full facts of Glantz's problems were never brought to his attention. The SEC has alleged no wrongdoing in the matter by Calvert.
"We obviously didn't communicate very well internally," he said in an interview. "Were we out to lunch? Did we have our heads in the sand? I think our board tried to do the right thing and would have acted appropriately if we had known the facts. We didn't."
But the facts were there, if only someone had listened to Centeno. Her present employer, Wells Fargo Advisors, wouldn't allow her to be interviewed for this column.
The SEC is now considering whether to hold stockbrokers to a higher standard, requiring them to look after clients' best interests rather than observing the much looser rule of selling "suitable" investments. Such a stricter, "fiduciary" standard might — might — have given Centeno better ammo to shut Glantz down.
Wall Street is complaining loudly about the proposal, saying it'll increase lawsuits and inefficiencies. But if regulators enact it, brokerages will have only themselves and employees like Glantz to blame.