Portfolio Insurance Firm’s Records Saved : Earthquake Plans Helped in Fire

Routine earthquake precautions helped a Los Angeles investment firm, blamed for contributing to last October’s stock market crash, survive Wednesday’s First Interstate fire.

Leland O’Brien Rubinstein Associates, which pioneered a controversial trading technique called portfolio insurance that critics say helped trigger the Black Monday stock free fall, saw its 13th-floor trading operations and headquarters totally gutted in the inferno.

However, because traders routinely take computer tapes home every night as a precaution against earthquakes, no trading records were lost in the blaze, said John W. O’Brien, the firm’s chairman and chief executive. The company resumed trading for clients Thursday morning, with employees working on personal computers from their homes, he said.

“Things have gone quite well for us,” O’Brien said Thursday in a telephone interview from the company’s new temporary headquarters a few blocks away in a skyscraper housing offices of Wells Fargo Bank, one of several companies that called Thursday morning offering to house Leland O’Brien Rubinstein.

“We never expected a fire, but we did think the probability of an earthquake was reasonable enough that (we) had to do this to be prudent,” O’Brien said.

None of the firm’s 25 employees were injured in the fire, but damage to computer equipment and furniture totaled about $500,000, all of which is insured, O’Brien said. The firm leased the office space from First Interstate, which owns 20% of Leland O’Brien Rubinstein.

However, Leland O’Brien Rubinstein still has other woes. The firm, considered the nation’s premier portfolio insurance concern, has yet to recover from a loss of business and tarnished reputation following the October crash.

Portfolio insurance is a computerized method of limiting losses on an investment portfolio by selling stocks or futures contracts on stock indexes when the market falls. A presidential commission chaired by former Sen. Nicholas F. Brady (R-N.J.) blamed that strategy for contributing to the October market meltdown by driving down prices of stock index futures contracts, which in turn pulled down the prices of stocks.

However, the firm contends that it is being held up as a scapegoat, that its actions accounted for only a small fraction of trading on Black Monday, and thus that it couldn’t have been responsible for the sharp collapse in stock prices.