Bringing freedom to securities: Drake Capital chief Joseph Di Lillo infuses securities brokerage with a liberated style.

There is a gaping five-foot-square hole ripped into Joseph Di Lillo's corner office ceiling, where dangling wires, insulation and massive, steel beams are exposed.

Di Lillo, 48, is chairman and founder of Drake Capital Securities Inc. in Santa Monica, a securities brokerage. The hole is almost directly over Di Lillo's chair and head, as if the result of a volcanic explosion of temper.

Not so, assures Di Lillo, another type of geological event was responsible.

"After the (Jan. 17) earthquake, they wanted to check the steel beam construction, so they ripped out the ceiling tiles," he says. "The quake was as powerful down along Fourth Street (Drake's address) as anywhere in the (San Fernando) valley. But it checked out fine."

As he speaks, Di Lillo looks as Southern Californian as the topic of tremors. Despite being a denizen of the sometimes stuffy financial set, Di Lillo is well-tanned, trim, attired in a blue company-logo-emblazoned golf shirt and wrinkle-free black cotton pants. He looks far younger than his years.

"Oh, we have a golf tournament later today. We don't always dress like this. But we are a casual place," explains Di Lillo of his garments. He says that next to skiing, he likes golf.

Many of Drake Capital's 75 staffers on a recent work day look well-dressed, but sans the suit-and-tie uniform of the securities brokerage world.

Di Lillo is amused, not upset, at the ambiance. "I really don't care what people look like. Customer service, the customer comes first. As long as you do a good, honest job, it doesn't matter what you look like," he says.

It is a change for Di Lillo, who has labored in places where dress and grooming were important, almost to the level of being a fetish.

Years ago, in the hot summer of 1969, Di Lillo was a securities analyst for Security Pacific Bank, in the trust department, along with about 20 other mostly young men. It was an era when bell bottoms and long hair were statements, and the bank would have none of it.

"But we wanted to fit in, to wear the hair just a little longer so we wouldn't look out of place in Manhattan Beach on the weekends," recalls Di Lillo. "It wasn't like we wanted to wear it down to our waists."

One fellow analyst, from a well-to-do family, even had a meeting with the Security Pacific chairman to tell him he would pull a million bucks out of the bank unless he and his compatriots could wear their hair a little longer.

"It went that high up. It all seems silly now, but then -- then you couldn't wear your hair the way you wanted. We went through hell at that bank because of hair. People had their jobs threatened," remembers Di Lillo, still sounding bewildered.

Security Pacific Bank is gone, and the topic of hair-length may be silly, but it is also informative about Di Lillo's management style. He believes a good manager does not put employees into straitjackets, whether in terms of dress, or behavior, or work.

"If you want a worker to be exceptional, you have to give him or her the freedom to come up with new ideas. We will listen to new ideas. Our attitude is 'Let's see if we can create to the next new product on Wall Street.' We want that kind of energy," says Di Lillo. "Self-starters, the entrepreneurial type."

Workers needing a lot of direction, who need "spoon-feeding," he says, don't work at Drake Capital.

Di Lillo stands as he talks and, indeed, never sat down during a recent one-hour interview -- resulting in a disconcerting feeling that the meeting was to be terminated any minute.

But, it turns out, he never sits down during trading hours, from 6:30 a.m. to 1 p.m. "It's just something I read that an executive could do to stay in shape a bit," says Di Lillo. "So I stand up in the office."

He started Drake Capital only 10 years ago, and today it has more than 70 employees, a growing clientele and increasing investment banking practice.

Revenues have exploded from $3.75 million in 1990, to $13.75 million in 1993, latest reported full year. Revenues in 1994 will exceed $15 million, says Di Lillo.

But Di Lillo says he thinks the best is yet to come.

"We finally have the critical mass of people we need to make things happen, the clientele and the talent," he says.

Drake Capital is, in industry parlance, a boutique investment banking and brokerage.

Generally speaking, its cadre of brokers invests on behalf of institutions and high networth clients in more-speculative situations.

Drake Capital, for example, was heavy into junk bonds soon after they collapsed, and like to invest in "special situation" stocks -- usually smaller stocks which Wall Street hasn't covered heavily.

"Why should we have an analyst on IBM? IBM (International Business Machines) is already covered to death. We can provide value researching companies that no one else is," says Di Lillo.

Too, Drake Capital has lately become involved in investment banking, generally lining up between $3 million and $6 million for worthy enterprises, usually by privately placing equity. (Equity or debt is considered privately placed if it is not registered with the Securities and Exchange Commission because of the limited number of investors involved.)

In larger securities firms, brokers do not also act as investment bankers -- that is, structuring deals, preparing prospectuses. But at Drake, brokers are hands-on players, says Di Lillo. "If a broker brings in a deal, he can act as point man through the whole deal, if he so desires," he adds.

By "bringing in a deal," Di Lillo means a broker who has found a business or venture worth financial backing, or investors who want to buy or start an enterprise, or best of all, both.

It's all a long way from home for Di Lillo, a native son of Long Island, where his father plied the landscaping and masonry businesses, and his mother was a legal secretary.

"It was an idyllic life," he recalls. "I grew up with the same set of four or five guys. In the summer we played baseball, in the fall we played football, in winter we sledded (in the snow). I recently went back and met some of the guys, who I haven't seen since. We all agreed it was a time of our lives we will always cherish."

From Long Island, Di Lillo sojourned to Notre Dame and then USC for the B-school scrip.

Seventeen years ago, he met his wife, Martina, on a blind date in Malibu, and they now have a daughter, Mia. They have settled in Pacific Palisades, a seven-minute commute from the office in Di Lillo's Lexus SC. The secret to marital bliss?

"Each spouse has to feel free to say what is really on his or her mind," says Di Lillo. "You have to communicate."

What does Di Lillo think the future holds for the stock market? Surprisingly, he gives not an analyst's spiel but a rather sociological treatment.

"The country is at a critical point right now, particularly as to how we are going to be viewed by foreign investors," he answers. "We have sociological problems that are bigger than our economic problems. You know, the O.J. (Simpson) incident really brought a lot of these problems to the fore -- there was a wide disparity between how blacks and white viewed whether O. J. was guilty or not."

If the United States can resolve the problems of racial division and urban decay, the future will be very bright, says Di Lillo. "But the world is looking at us as to how we resolve these problems," he says.

Snapshot

Joseph Di Lillo Native of: Long Island, N.Y. Age: 48 Education: B.S. from Notre Dame University; M.A./Business from USC