Quake

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Some big names from L.A.’s business past, the collapse of a local publicly held company, and plot twists worthy of a Tom Wolfe novel that in a nutshell is what’s going on in U.S. Bankruptcy Court in Houston.

At the heart of the dispute: allegations that Gerald Murphy, former chairman of bankrupt L.A.-based rice holding company Erly Industries Inc., is hiding millions of dollars in assets from his creditors, including his house in Pacific Palisades, by putting them in a bogus trust.

Michael Tenzer (probably remembered best as the former chairman of now-defunct Los Angeles-based real estate developer Leisure Technology Inc.) and Anthony “Tony” Frank (former chairman of San Francisco-based First Nationwide Savings and the former U.S. postmaster general) recently filed Chapter 11 involuntary bankruptcy papers against Murphy in Houston.

Last year, Tenzer and Frank went to trial in a Texas state court with a suit charging that Murphy reneged on a $5 million commitment made in 1995 to a Houston real estate development project, and they were owed damages. The state court and jury sided with Tenzer and Frank, and awarded them a $9.4 million final judgment. Tenzer and Frank went after collateral Murphy had pledged, which was Erly stock.

But now, Tenzer and Frank claim in papers filed in U.S. Bankruptcy Court on Jan. 25 that Murphy has “fraudulently” transferred funds into trusts and other vehicles beyond their legal reach. In particular, Murphy transferred Erly stock and his house, the latter valued at $8 million, to a “suspected sham trust whose address is the same as one of Murphy’s California attorneys,” the Tenzer-Frank allegations read.

Financial turmoil is not new to Murphy. Last September, Erly declared Chapter 11, filing for federal protection from creditors in Corpus Christi, Texas, near its major rice milling and packing operations. Murphy, a major shareholder, stepped down from his chairmanship, and the company is now run by the Baton Rouge-based Powell Group.

Erly’s main holding, American Rice (also then publicly traded, a major rice mill and packer) was bleeding red ink, which it blamed on a breached Saudi Arabian contract.

Both companies are now de-listed, and no longer filing papers with the SEC, although investors are speculating heavily in the bonds of American Rice because creditors, who have formed a committee, may be able to seize control of the vast rice packing operations in a settlement.

Murphy now claims to live in the Houston community of Kingswood, according to court papers. He could not be reached for comment, and his lawyer in Houston declined comment.

Said Tenzer last week, “I used to run a business, but now I spent my time in court. Running a business is more fun.”

Time for a walk?

Vans Inc., the sneaker maker, has captured the coverage interest and an “aggressive buy” recommendation from St. Louis-based brokerage A.G. Edwards & Sons. Inc. So what? Maybe nothing. Analysts have goofed before.

But coverage from A. G. Edwards is nothing to sneeze at. Though low-profile, A.G. Edwards now has the fourth-largest distribution system in the country, with more than 6,400 stockbrokers, and a healthy institutional sales department to boot.

That’s a lot of horses pulling Vans. One thing is for sure: A.G. Edwards is not buying in at the peak.

Vans’ stock, which traded at $6.75 a share just before the A.G. Edwards mid-January recommendation, and which last week traded in the $6.50 a share range, traded for more than $17 a share in 1997, and has a 52-week high of $14.63.

Vans is trading for about 10 times estimated fiscal 1999 earnings (for year ended May 31), very cheap on Wall Street today, where run-of-the-mill stocks command 20 times earnings and blue chips even more. Vans is out of favor right now, as its earnings have waffled sideways for two years.

Nevertheless, A.G. Edwards likes Vans’ “strong brand identity with extreme sports enthusiasts,” which means those daredevils who go to skateboard parks, or plunge down steep hills on mountain bikes or snowboards. A.G. Edwards thinks young Americans are turning to extreme sports and away from the old-time pro sports.

In addition to importing branded sneakers from South Korea and China, Vans is making men’s skateboarding shoes, opening up new retail stores at a more-rapid rate, and recently opened up a 46,000-square-foot skateboard park in Orange County, noted A.G. Edwards.

It will be interesting to watch if A.G. Edwards’ muscle and analysis and some real fundamentals from Vans, like bigger earnings will lead stockholders back to double-digit share prices. A.G. Edwards has a target price of $10 on Vans stock.

Quick takes

With China opening up to Western investment, there are lot of Southern California business brokers and others advising investors to take a look at building factories or other businesses there. Be careful, advises Joseph Wu, partner with the downtown Los Angeles law firm of Arter & Hadden LLP. “I had one client who had his factory seized by the workers,” said Wu. Chinese courts did not race to the rescue of the client, who lost a goodly part of his investment.

Major brokerage Prudential Securities predicts the dollar will weaken against most major currencies this year, improving reported earnings of U.S.-based multinationals.

Tom Weinberger, West Los Angeles-based president and investment banking dean at Sutro & Co., notes that the old-line brokerage, once known as a “retail” shop that mostly sold stocks and bonds through stockbrokers, now places about half its sales to institutional buyers. Sutro has significantly beefed up its institutional sales and trading desk in the last few years, said Weinberger. “Even retail buyers now want to be assured that institutions are buying a stock. If the institutions don’t buy, then a lot of retail people don’t want it either,” he said.

Pacific Gemini Partners LLC, the downtown Los Angeles-based money manager, has closed up its funds and accounts (which specialized in troubled South Korea equities market), and will now focus on mergers and corporate restructurings, again with an emphasis on South Korea.

Contributing Reporter Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].

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