Morgan Olmstead Denies Fusco’s Charges That Firm Misled Him
A Los Angeles brokerage Friday refuted claims of its former president that he had been misled about the firm’s financial condition. The assertion had been made by Michael H. Fusco, who resigned Thursday from Morgan, Olmstead, Kennedy & Gardner.
Morgan Olmstead also denied Fusco’s claim that the firm had failed to pursue the business plan established when he was hired in May.
“I would categorically deny both,” said Ronald J. Consiglio, executive vice president. He would not elaborate on the firm’s financial condition, which Fusco described as “different” than was described to him when he left Paine Webber to join Morgan Olmstead.
Of the business plan, to change the brokerage’s emphasis and to focus on California investments, “We’re continuing to follow those plans” despite Fusco’s departure, according to Consiglio.
Fusco quit after it was disclosed that Morgan Olmstead bought his 6.2% stake in the firm, worth $761,250, to cover an Oct. 20 margin call on his personal trading account. Though the sale was only recently disclosed, Fusco and Consiglio said Friday that it took place in late October.
An investor who borrows funds to buy stocks is subject to a margin call when the value of his portfolio falls enough to jeopardize the loans. The margin call is a demand that the investor deposit enough money to bring a margin account up to a certain minimum level.
The former executive contends that the firm initially refused to buy his shares in the firm to cover the margin call and only relented because it feared legal action. He said he could have covered the margin call with his own funds but didn’t want to sink any more money into Morgan Olmstead.
Fusco indicated that he will sue Morgan Olmstead to collect his alleged damages--including the approximately $500,000 decline in the value of his investment in the brokerage over the last eight months.
He said he invested about $5.75 per share, or more than $1.2 million, last spring. The market price when Morgan Olmstead bought Fusco out to cover the margin call was $3.625 a share, or $761,250.
