Private Ledger Rides Out Losses, Lawsuits

Given the year Private Ledger Financial Services had in 1984, it’s a slight wonder that the firm still exists.

Last year, the company was sued by several former clients, caught in the web of a collapsed and fraud-ridden Del Mar real estate investment firm, and juggled between warring factions in complicated and protracted court battles.

“It could have been an unmitigated disaster,” acknowledged President Phillip Montross. “But we didn’t batten down the hatches and embrace a siege mentality.”

What Montross did was perform a careful balancing act.

He prevented a takeover by Private Ledger’s former parent firm, American Principals Holdings Inc., while pitching his company’s value to Crown Life Insurance of Canada.

Crown had loaned APHI $9 million in 1983, taking an option to buy Private Ledger as collateral.

So when APHI collapsed after an April, 1984, disclosure that an “internal investigation” had unearthed financial improprieties, Crown had to choose between waiting in line as an APHI creditor or taking over Private Ledger. Montross persuaded Crown to do the latter.

Now, despite $600,000 in losses and a 26% drop in revenues to $32 million for the year ended March 31, Montross maintains that Private Ledger is “stronger than it ever has been . . . from the standpoint of providing service and being a significant competitor.”

The company was “battered and bruised,” Montross said. “We took our lumps, we came out of it and we’ve a story to tell.”

Indeed, Private Ledger has been profitable since January and is rebuilding its stable of broker representatives. The firm is a registered stock broker-dealer that hires stockbrokers as independent contractors. It now has 664 registered brokers drawing commissions of more than 85% of sales. That number is up from a low of 630 last fall, but still below the peak of 713 in April, 1984.

It is Private Ledger’s network that Crown Financial Services, a subsidiary of Crown Life Insurance, believes could be lucrative.

Crown’s purchase of Private Ledger is incomplete, pending an independent appraisal of Private Ledger’s net worth. As of March 31, the firm’s book value was $1.5 million, according to Montross.

Last summer, a federal judge ordered the sale for $750,000 plus market value as of July 19, 1984.

Private Ledger was American Principals Holdings’ biggest subsidiary, and the court’s action came as a blow to APHI. The sale, combined with the judge’s refusal in May to consolidate APHI’s limited real estate partnerships, has left American Principals with few financial options other than bankruptcy, several sources familiar with the firm believe.

Ashley Orr, APHI’s receiver, insisted, however, that he will avoid filing for bankruptcy, and maintained he wants to “get the remaining partnerships either on their own feet or assist them in disposing of the property.”

That is a far cry from American Principals Holdings’ heyday, when it managed assets of about $250 million after raising about $90 million from nearly 3,000 investors.

The funds were so fraudulently commingled, however, that the only way to dispose of the properties properly was to combine all the partnerships into one “super fund,” Orr had argued.

But U.S. District Judge Leland C. Nielsen rejected his court-appointed receiver’s claim and allowed five of the remaining 44 partnerships to be separated from APHI and take with them half the $66 million worth of properties.

About 60% of the money APHI raised was from Private Ledger clients. In turn, commissions from APHI represented 5% of Private Ledger’s business.

That type of financial dependence likely won’t happen again at Private Ledger.

“As long as I’m here, we won’t be so invested in a firm that it controls a part of our business,” Montross pledged. “We just don’t allow that anymore (and) we’ve terminated half a dozen such relationships.”