Mayor Turned Quick Profit on Two Hot Stocks

The stocks were sizzling hot, and Mayor Tom Bradley held coveted shares of each.

One involved Worlds of Wonder, Inc., a company marketing talking teddy bears; the other, L.A. Gear, sold trendy athletic shoes.

Revised financial statements released by the mayor Friday suggest that Bradley bought shares in each company before or just as they were made available publicly to other investors.

He then sold them within hours after the stocks were made available on the open market. In each case, he made more than $1,000, nearly doubling his money on one investment and reaping a 61% profit on the other.

There was nothing apparently illegal about either transaction. Nonetheless, according to financial experts, the trades suggest a pattern in which Bradley has benefitted from preferential treatment by brokers that he might not have received had he been a lesser investor or someone other than the mayor.

Bradley had previously reported his investment in Worlds of Wonder, but until Friday had not revealed the specific dates on which he bought and sold the stock. He has never before officially reported or publicly mentioned his investment in L.A. Gear.

According to sources and records released Friday, Bradley acquired stock in both companies during “initial public offerings.” In other words, he was given the opportunity to buy shares in each company before or just as the stocks were made available to investors on the open market.

Preferred Customers

Initial offerings of “hot” stocks often are reserved for preferred customers. In some cases, brokers will telephone preferred customers, alerting them to a new public stock offering before it hits the streets.

“It’s like the old boy network,” said Mitchell Keil, a professional financial planner with IDS Financial Services in Irvine. “It’s a very gray area from a securities point of view . . . but legitimate in the narrow scheme of things. A broker who has a good client and who wants to keep him a good client will give him advance warning that, ‘Hey, were gonna have something come out Tuesday morning. Keep $50,000 handy and I’ll call you early.’ ”

That way, Keil explained, a preferred client can buy shares at the opening price and “ride it up” as word of the stock spreads and demand for it builds through the day.

This apparently was the case with both Worlds of Wonder and L.A. Gear.

In 1985, the start-up Worlds of Wonder made history with Teddy Ruxpin, a bear that talks with the aid of a special cassette tape. Consumers spent $93 million for the cuddlesome bears that year--the most ever for a new toy.

When the Northern California company decided to go public at $18 a share the next year, Bradley got a piece of the action, said a source familiar with the mayor’s finances.

Bradley is not required to divulge the specific amount of stock he holds in any company, only the approximate value. Nor is he required to disclose the name of his stockbrokers. He has refused to answer reporters’ questions about his personal finances.

The source said Friday that Bradley bought 100 shares in what Smith Barney, Harris Upham & Co., the lead underwriter of the offering, called “the hottest stock of the year.” Records show that on June 20, 1986--the first day Worlds of Wonder stock was offered to the public--the initial offering soared to $29.25 a share. Bradley sold his shares on the same day at $29 for a $1,100 gain.

As for L.A. Gear, Bradley revealed Friday that he bought and sold less than $10,000 of the Los Angeles-based company’s stock on July 1, 1986--the day L.A. Gear went public. The source said that Bradley bought 100 shares of L.A. Gear at $11.50 a share and sold them for $22--a $1,050 gain.

“The mayor’s broker has said he has made this stock available to all of his customers,” the source said. “He said Bradley was not the only one he made it available to.”

In both the Worlds of Wonder and L.A. Gear deals, Bradley was what brokers describe as a “flipper”--an investor who buys shares in a company and then sells or “flips” his shares soon after the stock opens for general sales.

There is nothing illegal or unethical about such aggressive trading, according to brokers, who nonetheless say that they often try to discourage the flipping of stocks because it can destabilize the value of the same stock still held by other clients.

Other Investments

Records released by Friday by the mayor show that he has not shied from turning over other short-term investments.

For example, on Jan. 14, 1986, Bradley acquired between $10,001 and $100,000 in stock in Coast Savings & Loan Assn. The stock that day traded between $15.12 and $15.25. Less than four weeks later, on Feb. 10, Bradley sold his shares for somewhere between $18.25 and $19--a profit of about 20%.

Not all of the mayor’s investments have proven so profitable.

On July 14, 1987, Bradley bought $10,001 to $100,000 worth of stock in Mattel Inc., the Hawthorne-based toy manufacturer, at a price per share of between $10.75 and $12. He sold his shares on Dec. 30 for between $6.75 and $7--a loss of between $4 and $5.25 a share.