Forbes Fires Writer After Learning of Securities Violations

Forbes magazine has dismissed a paid consultant who co-wrote two recent major stories about Donald J. Trump and Merv Griffin after learning that the writer was barred from the securities business for violating securities laws when he worked as a broker-dealer.

The writer, John J. Connolly, is also the subject of a federal investigation in New Jersey, where a judge three weeks ago asked the U.S. Attorney’s Office in Newark to determine whether Connolly gained access to sealed court documents used in one of the stories by showing outdated police credentials. Connolly, a former New York City police officer, has denied that he used illegal means to get the documents.

On Wednesday, a Forbes spokesman confirmed that the magazine had terminated its arrangement with Connolly but added: “We absolutely stand by the stories.”

Both stories were co-written with Richard Stern, a Forbes senior editor who covers the securities business for the magazine and in 1985 won the prestigious Gerald Loeb Award for a story on problems at First Jersey Securities.

In a May 14 story titled “Manhattan’s Favorite Guessing Game: How Rich Is Donald?” Stern and Connolly--before Trump’s debt crisis surfaced--cited “non-public documents submitted by Trump to a public body” as support for their argument that the investor had only a fraction of the net worth that he publicly claimed.

A June 11 story by the pair, titled “How Merv Griffin Got Taken to the Cleaners,” cited non-public court documents in claiming that Griffin was lured to invest in Resorts International, which later filed for Chapter 11 bankruptcy protection, by mob-influenced executives.

One individual close to Donald Trump said the developer intends to sue Forbes over the story about his wealth. Connolly “got the documents improperly, and he phonied up Trump’s assets. They have damaged Trump immensely, and he’s going to even it up,” the individual said.

The Forbes spokesman, Ray Healy, declined to say why Connolly was severed from the magazine or to give details of his financial arrangement with Forbes. Stern didn’t return calls.

Connolly, however, said Wednesday that he was being paid $5,000 a month by Forbes and was terminated when the magazine learned of his violations as a broker-dealer. But he said the magazine’s editors apparently didn’t know that, by his account, he committed the supposed violations while working undercover on a “major criminal investigation” for the Justice Department and the Manhattan district attorney.

“If they had all the information, I believe they’d reconsider if they want to keep me,” said Connolly, who is working on a book about organized crime.

Connolly said he is appealing all of the various disciplinary actions taken against him when he worked as sales manager of a now defunct New York firm called Equities International.

In one action, initially reported several days ago by a Los Angeles securities newsletter called Wall Street Tales, Connolly in 1987 was barred by the National Assn. of Securities Dealers’ Philadelphia district business conduct committee from acting as a securities dealer until at least 1991.

The action came after Connolly allegedly maintained a personal account under a fictitious name, established an account for his wife without disclosing their relationship and engaged in “free riding,” a practice in which a broker illegally buys and sells securities without paying for them.

According to NASD records, Connolly was ordered by the Florida Department of Banking and Finance in July, 1989, to refrain from further securities violations after “concealing material facts” in connection with securities sales, among other things.

In 1988, according to an NASD officer, the Securities and Exchange Commission moved to censure him, bar him from the securities business and impose a $100,000 fine for violations. Connolly said he is appealing that action and expects to win because of his association with the undercover law enforcement operations.

Connolly said he became associated with Forbes after a researcher at the magazine called him for information about a “mob guy” whom the magazine was investigating. Connolly said he didn’t fully disclose his background when he began working with the magazine but gave Stern “a sealed envelope” containing secret documents that were, he said, supposed to establish his identity as an undercover operative “if things blew up.”

Connolly said he never flashed a police badge when he obtained the sealed affidavits used in the Merv Griffin story. “The judge is trying to protect his law clerk,” who handed the material out by mistake, Connolly said.

When word of the investigation surfaced, Forbes Editor James Michaels defended both Connolly and the story. “No sealed documents were fraudulently obtained,” Michaels told a Wall Street Journal reporter at the time. Healy, the Forbes spokesman, said a subsequent internal review supported the stories and Connolly’s claims to have obtained the documents without misrepresentation.

Forbes, one of the country’s top three business magazines, has long prided itself on being more aggressive than Fortune and Business Week in the pursuit of business malfeasance and misjudgment.

In its June 11 story on Griffin, the magazine noted with apparent disapproval that one of the entertainer’s chief financial advisers had close ties with an individual, Peter Aiello, who had been “barred from the securities industry since 1987.”

The story didn’t mention that its co-author, Connolly, was under a similar ban.