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Merriman Ascends Out of Fraud's Ashes
By JENNY STRASBURG
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(September 2, 2009 - Wednesday) - The problems at Merriman Curhan Ford Group Inc. were the talk of San Francisco's financial community when it broke in June 2008. A retail broker at the firm, which trades stocks and offers merger advice to small companies, had stolen client records to help a friend swindle loans from banks and other investors.
The broker, Scott Cacchione, helped William J. "Boots" Del Biaggio III, a Silicon Valley venture capitalist and former minority owner of the San Jose Sharks National Hockey League team, fraudulently apply for loans from several community banks and private individuals, according to regulators.
Mr. Del Biaggio obtained more than $45 million in personal loans using the false information, according to the Securities and Exchange Commission, in part to settle gambling debts.
Mr. Cacchione emailed Mr. Del Biaggio account statements of unknowing Merriman customers, which Mr. Del Biaggio then doctored to reflect as his own personal holdings, the SEC said.
Both have pleaded guilty to securities fraud and await sentencing scheduled for September in U.S. District Court in San Francisco. SEC matters involving the men, and an SEC investigation of Merriman, are pending. A lawyer representing Mr. Del Biaggio declined to comment. An attorney for Mr. Cacchione couldn't be reached to comment.
The effects of the scandal were devastating for Merriman. Shares of the publicly traded company slumped. Clients defected, and the firm had difficulty raising capital as the economy soured.
"Quite honestly, probably a more rational course of action would have been to just fold the tent and go home," said co-founder and Chief Executive Jonathan Merriman, 49 years old, who previously was managing director of the Wells Fargo Securities equity group, formerly First Security Van Kasper. "My name's on the door. I'm proud of what we built."
Merriman cut about half its staff, and fought to keep asset-management clients amid the crises of its own legal troubles and the broader economy.
Thursday, it unveiled a rescue plan, in which it agreed to settle $43.5 million in private legal claims. It also brought in new investors, who are kicking in $10.2 million into the company.
The investors in the private placement include Chicago investor Ronald L. Chez, as well as Thomas Unterberg and Andrew Arno, both former executives of C.E. Unterberg, Towbin, an investment bank sold in 2007. Mr. Arno also is joining Merriman's board.
So is Douglas Bergeron, chief executive of San Jose, Calif.-based VeriFone Holdings Inc., which invests in electronic-payment systems. He is part of the settlement with Merriman, which paid out cash amounting to about 10% of $43.5 million in lawsuit claims plus undisclosed equity in the firm.
Mr. Bergeron, 48, said he became impressed by Merriman during the settlement negotiations and sees a niche for the firm in trading and deals involving smaller health-care, technology and other firms.
Mr. Bergeron, who said he lost about $3 million lending money to Mr. Del Biaggio, said the lawsuits related to the fraud could have been the end of Merriman Curhan.
"Without a settlement, the company would go bankrupt," he said. "I like to watch where my money goes. This is a restart."
Merriman's stock has hovered below $1 since the fraud was disclosed, after spending most of the previous three years above $5. On Thursday, it jumped 26 cents, or 41%, to 89 cents, in 4 p.m. Nasdaq composite trading. The company carries a market capitalization of $11.3 million.
The firm is looking to play a role in initial public offerings by smaller companies. Merriman has been hiring selectively, and now has about 85 employees, down from a 2007 peak of 200.
Merriman is one of the collection of San Francisco boutiques that rose out of the city's storied investment-banking history, where firms like Montgomery Securities and Robertson Stephens thrived, but later disappeared.
Merriman launched as a broker-dealer in 2001, with a focus on technology, telecom and stocks of other fast-expanding companies. The timing was devastating. The tech sector was imploding, and the Sept. 11 attacks temporarily froze markets.
"We started during a difficult period," Mr. Merriman said. "And last year, people definitely took us for dead."
By: Jenny Strasburg
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