CRUISIN’ FOR A BRUISIN’: TAKING ON BROKERS INVESTORS SAY DONE ‘EM WRONG

Whether it’s a pool of water beneath a 100-foot cliff in Canada or setting up his own broker-dealer operation, Steven J. Popkin will dive right in.

“I’ve always been an adrenaline junkie,” says the 32-year-old founder and chief executive of Pan American Securities in Florida. “But this business is brutal, I’m telling you.”

This coming from a guy who’s done more living than most his age, having experienced personal bankruptcy in his early 20s, and previously set up two other businesses — a telephone installation company and a whitewater-kayaking and mountain climbing school that he eventually sold. Pan American, which has suffered its fits and starts since opening in 1997, could be his biggest challenge.

With $100 million under management, Pan American is a tiny holding company with subsidiaries that include AC Financial, an unusual and fast-growing broker-dealer, and Investors Resolutions, a unit that would seem particularly likely to get under the skin of his competitors, because it’s a consulting firm that helps investors go after brokers who have done them wrong.

No relation to a now defunct New York company of the same name, Pan American maintains offices in Palm Harbor, 25 miles northwest of Tampa. Palm Harbor is described by the local chamber of commerce as having “a short but rich history.” Just like Mr. Popkin’s company.

rapid boredom

It began when he got restless in what should have been a dream job — teaching people how to guide kayaks through river rapids, leading groups through challenging whitewater in Idaho, Canada and Costa Rica. Mr. Popkin, who says he was a party animal at the time, took a few tumbles along the way. He attended two colleges but didn’t graduate. In 1990, to clear up $20,000 in debt before getting married, he declared personal bankruptcy.

“Now that I’m making six figures a year, it just seems ridiculous,” he sighs. “But it was personal. No company has ever gone under that I’ve managed.”

Indeed, by 1991, Mr. Popkin’s Maryland-based kayaking and rock-climbing business, Adventure Schools, was teaching from 200 to 300 people a week, making it arguably the biggest institution of its kind in the country. But as the business grew, he found himself chained to a desk instead of hunting wild rivers.

Also, his $30,000-to-$40,000 annual income wasn’t enough to support his tastes, particularly as his expectations began growing as he discovered the stock market. By 1993, he was making more money from trading stocks than from running the school. A year later he sold the school and started trading full time.

In 1997, he took his profits and bought Investment Offices, a Maine broker-dealer, changing its name to AC Financial. In 1998, he added Florida broker-dealer Addison Financial and moved operations to its more business-friendly and sunnier climes. He started to hire brokers, under a business plan he now says was “flawed.”

“I thought there would be a market niche in hiring some of the younger brokers who had incredible sales skills, then to have them only sell quality products,” he says.

But the young brokers, with a couple of exceptions, didn’t rise to the occasion. Most were gone in three months or less.

low maintenance

“I’m hiring only `old’ now,” he says, “experienced brokers only. These guys, they’re incredible! They don’t need any help. They need almost no training. They need no support.”

His latest hires have ranged in age from the late 40s to one broker who is 70 and, as Mr. Popkin notes, has been “a broker longer than I’ve been alive.” Several have come from his favorite hunting ground — large established competitors including A.G. Edwards Inc., Salomon Smith Barney Inc. and Raymond James Financial Inc.

He provides health care, a retirement plan, stock bonuses, solid signing bonuses — luxuries that many of the veterans hadn’t had before. AC Financial pays a 50% to 65% commission, and while that’s less than many other independent broker-dealers, other financial perks make the total package attractive.

Mr. Popkin’s signing bonus, for instance, comes in the form of a forgivable loan, while many brokerages offer bonuses that are actually a draw against commissions.

“The payouts going independent were a lot more inspiring,” laughs Richard C. Jones III, an AC Financial vice president who spent seven years at A.G. Edwards in Florida.

A big plus for Mr. Jones, who made the jump to Mr. Popkin’s firm in November, was that Mr. Popkin was willing to share the costs of discounting. Mr. Jones has a lot of wealthy, long-term clients looking for aggressive individual equity investments. To compete with discount brokers, Jones wanted the flexibility to discount commissions himself — but not to absorb the entire cost.

“Steve was more willing to share in the discounting to get my clients’ business,” says Mr. Jones.

He also likes Mr. Popkin’s marketing ideas. “Steve is pretty entrepreneurial,” he says, “and had some very interesting ideas, ways that he thought I could build my business. Nothing extremely unique, but he’s just a real persistent kind of guy. Everything he’s told me he was going to do, he’s done.”

turning the corner

On the brokerage side, Pan American’s revenues are near break-even. Mr. Popkin has started to take a salary, and he expects 5% to 10% revenue growth month-to-month from here on out.

Trades are cleared through Herzog Heine Geduld, the old-line New Jersey trading firm. “Instead of my inexperience getting in the way of the company,” says Mr. Popkin, “I’ve now gained some experience. All I do is recruit brokers now.”

Investors Resolutions, Pan American’s fraudulent-broker attack division, is turning out to be less lucrative, however.

Mr. Popkin got the idea over drinks with friends, each of whom had had a bad experience with a broker. “I was robbed by a broker-dealer, too,” he says.

He sued the broker himself, but the broker appealed and in the end, Mr. Popkin says, he was never able to collect.

Just writing a letter of complaint to a securities regulatory organization can be frustrating. “Most of the time,” says Mr. Popkin, “you send them a letter and the broker denies everything and the regulator sends a letter saying `No action merited.’ You go to arbitration.”

He doesn’t think the regulators have the wherewithal to spend much time investigating these complaints. He and his friends saw a huge potential demand. “And we thought, `If there’s a way to get a piece of all the money stolen from investors by bad firms, we’d be rich,”‘ he recalls.

With a modest advertising campaign and referrals from sources like investment advisers laboring to repair mishandled portfolios, Investors Resolutions screens investors’ complaints. If the complaint looks valid, the investor is referred to a lawyer experienced in taking cases through the arbitration system of the National Association of Securities Dealers.

Investors Resolutions does not file suit in court because most brokerages require that their clients agree to use arbitration for dispute resolution.

seeks blatant cases

Investors Resolutions is also picky about clients.

Michael C. Efrusy, chief legal officer for Pan American Securities, rejects investors with the philosophy that, “Just because they lose money on a stock, they think they can go out and sue their broker and get their money back.” He looks for cases that show out-and-out broker fraud, like churning or recommending blatantly unsuitable stocks.

The firm declined the one complaint it reviewed that was aimed at an investment adviser. “Most of the time, the investment adviser is less likely to be corrupt,” Mr. Popkin says. “They don’t have a motivation to do excessive trading.”

Investors Resolutions takes cases on a contingency basis, charging as much as a third of the amount recovered. In business for a little over a year, Investors Resolutions has retrieved $250,000 so far, in two cases. In the two dozen pending, claims have been filed for more than $3 million.

Mr. Popkin still likes the credibility he believes that Investors Resolutions brings to Pan American. “If you help investors recover losses,” he contends, “your whole thing is trying to define yourself as somebody different.”

But in the end, any big fees go to the lawyers, not Pan American, which gets what amounts to a management fee.

And while Mr. Popkin says that none of his business relationships has been damaged so far from an Investors Resolutions case, “it does make me question: Could I?”

He plans to spin off ownership of the company soon, limiting Pan American to no more than a promotional and management-consultant role.

Mr. Popkin has brokers to recruit, after all. With 18 now in harness, he cold-calls experienced candidates at night at their homes. And he’s still restless for new business ideas.

“I know I have a couple of little niches,” says Mr. Popkin, speaking as fast as his mind races. “But I haven’t found my big niche, you know what I’m saying?”