Founder Leaves, Passing Reins at Cruttenden Roth

Cruttenden Roth Inc., one of California’s largest regional investment bankers, said Wednesday that founder and Chairman Walter Cruttenden III has resigned and that a former Hambrecht & Quist executive will become president and chief operating officer.

Patrick J. Allen, whose resignation as chief financial officer at San Francisco-based Hambrecht & Quist was announced Tuesday, will join Cruttenden Roth next month.

Byron Roth, Cruttenden Roth’s president since the beginning of 1994, will become chairman and continue as chief executive.

The changes, including Cruttenden’s departure, end a management restructuring that began several years ago, Roth said. Cruttenden, who retains an 18% stake in the Irvine company, has started his own venture capital firm, investing in start-up businesses.

Roth, 35, characterized Cruttenden’s resignation as voluntary and amicable. The 48-year-old Cruttenden, who founded the firm in 1977, said he has been “phasing out” of the company since selling half his interest to Irvine-based Fidelity National Financial Inc. earlier this year.

Allen, 36, is a former Cruttenden Roth executive, having served as the company’s chief operating officer from 1993 to 1995.

The firm specializes in finding and developing so-called micro-cap companies--those with capitalization between $25 million and $250 million--and taking them public. The firm won’t be changing its focus, Roth said, but will be intensifying its activities.

For its part, Irvine-based Fidelity wants to use its 18.5% stake in Cruttenden Roth to “keep abreast of investment opportunities in emerging companies,” said Frank P. Willey, the title insurer’s president.

In 1997, Cruttenden Roth was involved in 23 public offerings and was lead manager on eight IPOs for companies it was shepherding through the early growth stages.

Through June 30, Cruttenden Roth was involved in 13 offerings, including the lead manager role in six of them. The firm has taken one company, Cost-U-Less Inc., a Washington-based discount warehouse store chain, public in the second half of the year as the IPO market cooled dramatically.

By bringing in Allen, a specialist at organization and management, Roth is freeing himself to concentrate on business development--a critical need in what has become a weak market.

“Pat Allen has proven himself a very capable administrator and possesses a keen strategic view of industry,” said Michael Flanagan, a Philadelphia-based independent securities industry analyst. “He will certainly add new dimension to Cruttenden Roth. He was quite involved in the venture capital subsidiary at Hambrecht & Quist and that well could be an area Cruttenden Roth is setting its sights on.”

Cruttenden Roth has been criticized by some investors for being too lax in its choice of companies to promote. Last year, for example, it underwrote the initial offering of Irvine-based Aviation Distributors Inc., which has since settled three shareholder lawsuits alleging that its top officials had falsified sales figures to boost the stock price.

Aviation Distributors went public in March 1997 at $5 a share. Its stock traded as high at $12.88 before tumbling in the wake of the lawsuits. It closed Wednesday at 97 cents, up 9 cents, in Nasdaq trading.

Roth says Cruttenden’s role in the poor performance of Aviation Distributors has been overblown.

“We deal with early stage companies, and they don’t always work out, but that’s the nature of the business,” he said.

Roth said that a name change for Cruttenden Roth “could happen” in the future although there are no plans “for now” to make an alteration.

Cruttenden, who said he felt it was “time for a change,” has started a new firm in Newport Beach, Cruttenden Partners, which will specialize in investing in new electronic-retailing and financial-services businesses.