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Republican Presidential Candidate Donald Trump’s public vindictiveness and pettiness should be well-known to the American public by now.
In the most recent episode (and there will be more to come), Trump criticized Judge Gonzalo Curiel, who is presiding over one of the cases against Trump University and who this week ordered the release of documents related to that case. In this instance, Trump accused the judge of being prejudiced against him because he is of Mexican descent, even though he was born in Indiana.
Trump’s recent attacks on a Federal judge who made rulings against this interest in Trump University are not new. Such attacks are part of Trump’s personality and his way of doing business. He does not cope well when things don’t go his way.
Just ask former securities analyst Marvin Roffman, who in April 1990 worked at the Philadelphia securities firm of Janney Montgomery Scott. When Roffman was quoted in a Wall Street Journal interview that bondholders should sell junk bonds issued on Trump’s newly-opened Taj Mahal Casino in Atlantic City, New Jersey, Trump went ballistic and decided to go for blood.
As reported by Jonathan Laing in this complete Barron’s article, Roffman said the $675 million in junk bonds, issued at 14%, were not sufficiently secured by casino revenues to pay the interest. At the time, the Trump organization said the casino would be “The Eighth Wonder of the World.”
The “people I don’t take too seriously are the critics—except when they stand in the way of my projects.”
Donald Trump
The Art of the Deal (1987)
Trump’s inflated name and reputation pushed the bond price to 101 cents on the dollar, Barron’s said, but soon reality set in and the bond price fell to about 80 by 1990-1991 and soon to 20 cents on the dollar as casino revenues failed to materialize.
I covered this story as the editor for Zacks Investment Research in Chicago and the story developed at about the same time that more investment firms were starting to question the quality and motives of equity analysts who wrote research reports on some companies.
While there has been research produced by brokerage firms who sell stocks (called “sell-side” research) and other research produced by buyers of brokerage and banking services (called “buy-side”), an increasing number of buy-side institutions began setting up separate, independent research divisions to produce their own company research for in-house use only.
This alternate set-up was designed to reduce or eliminate the conflicts-of-interest between the investment bankers and their own equity and bond research analysts.
Roffman was an independent analyst in the truest sense. He did his own research and analysis and reported what he concluded. Trump came from a different world.
As cited by Laing and Alan Abelson, who both wrote about this Trump-Roffman episode for Barron’s, Trump went ballistic when Roffman warned investors about the danger of the junk bonds. To punish Roffman, Trump called the CEO of Janney Montgomery, made some false and disparaging personal remarks about Roffman (sound familiar?) and threatened to sue the firm unless Roffman wrote a public apology.
Under pressure, Roffman agreed, however, Trump then wanted him to change a sentence in the letter saying the bonds were a viable investment, but after consulting with his lawyer, Roffman retracted the apology letter as described in Laing’s Barron’s article. Janney then proceeded to fire Roffman a few days after the Wall Street Journal article appeared. So much for corporate backing of independent research analysts on Wall Street.
The story ends this way: Trump never sued Janney; the Taj defaulted on its first interest payment in October 1990, forcing Taj junk bonds prices into the 20s. And as predicted, the Taj filed Chapter 11 bankruptcy in the spring of 1991. Atlantic City was again victimized by big money interests.
As for the people involved, Roffman exited his 30-year career as an equity analyst and became a successful money manager. He also won a $750,000 arbitration case against Janney and he settled with Trump for an undisclosed amount that remains secret due to a confidentiality agreement. In a later Politico article, Roffman said “I’m telling you, Trump is a brutal guy.”
As for Trump, he is still up to his old tricks at the national level. Maybe he can “Make American Great Again” just like he made the Taj Mahal Casino in Atlantic City into “the Eighth Wonder of the World.”
