Morgan, Olmstead successor firms file bankruptcy petition.

Morgan, Olmstead successor firms file bankruptcy petition

Two successor companies of Morgan, Olmstead, Kennedy & Gardner Capital Corp., which was one of Los Angeles' largest and more prominent brokerage firms in the growth years of the 1980s, have filed for Chapter 11 bankruptcy protection with liabilities of more than $14 million.

Industry sources, who did not want to be identified, blamed the downfall on the 1987 stock market crash, poor management, a drop in commissions and the overall decline in profits of brokerage companies.

The attorney for the successor companies, Joseph Eisenberg in Los Angeles, said the filing was necessary because of a $3.5 million judgment that was recently entered against Enden Inc., and Enden Holdings Inc.

A major unanswered question is what liability Wedbush Morgan Securities, another prominent Los Angeles brokerage company, has to Enden creditors. Wedbush purchased Morgan, Olmstead about 18 months ago and had been operating the combined company at offices at 1000 Wilshire Blvd.

Wedbush officials refused to comment on any aspects of the petitions, which were filed in Los Angeles in the U.S. Bankruptcy Court on Sept. 6.

The petitions listed assets of $10.7 million and liabilities of $12.3 million for Enden Inc., and assets of $11.5 million and liabilities of $14 million for Enden Holdings.

The sources said Enden and Enden Holdings were probably established to absorb the losses and liabilities of Morgan, Olmstead. They said consumers who had done business with Morgan, Olmstead brokers, or who had bought into the company, will probably not be hurt by the bankruptcy because their investments are protected by Wedbush Morgan, a private company. They said, however, that "insiders" that had invested in Morgan, Olmstead, a public company, are potentially at risk.

"Enden took over the residue of Morgan, Olmstead. Wedbush did not want to take on the liabilities of the company," said one source, who did not want to be named.

"The public is protected but the insiders of the company who had held the bulk of its assets now may suffer the bulk of its losses," said the source.

In the bankruptcy petition, Enden Holdings is listed as a holding company and Enden Inc., is described as: "Not currently engaged in business other than realization and preservation of assets and the resolution and quantification of purported liabilities, including contingent and disputed claims, some of which are in litigation/arbitration."

One investor who is potentially at risk because of the bankruptcies is Gary Rollason of Corona del Mar, an independent consultant who worked as a broker at Morgan, Olmstead for 15 years before leaving the firm four years ago. Rollason said he invested $250,000 in the brokerage and is now listed as a creditor of Enden Inc., and Enden Holdings.

"It was a good firm. We dealt with mostly individuals with strong assets, not the masses. There was a strong commission structure but then the commission structure in the industry changed because of the discount brokerages like Charles Schwab. I'm surprised because I didn't think the company had that many money problems," said Rollason.

Eisenberg, the bankruptcy attorney for Enden and Enden Holdings, said the bankruptcy filings were necessary because of a $3.5 million judgment against the companies. The judgment was the result of a lawsuit brought by F/M Entertainment in Manhattan Beach and involved a contractual dispute.

"F/M was threatening to enforce the judgment and in order to protect the assets of the companies while an appeal is pending, and in order to maintain the operations, it was decided to file for Chapter 11," said Eisenberg, who declined any further comment.

There is no listing for F/M Entertainment in the Manhattan Beach telephone directory.

Industry sources in Los Angeles said a combination of factors probably led to the bankruptcies. One source said Morgan, Olmstead, which had a loss of $422,000 on revenues of $48 million in 1987, was seriously hurt by the October 1987 stock market crash.

Another former employee said the firm was poorly managed and spent a lot of money on lavish offices.

"There were original paintings in the lobby and the offices were furnished beautifully. I remember one time people came in from New York City just to wax the furniture. That service was part of the purchase price but it gives you an idea of what I'm talking about. The company had a huge overhead," the former employee said.

One industry source, a prominent figure in the brokerage business in Los Angeles, said, "I understand it had some legal problems and that they were life threatening in their amounts, but basically I think the firm was not tightly controlled. The store was not tightly watched but I think there is something you should know and that is that the industry is not known for its management acumen."

Morgan, Olmstead also did not have a clear focus, the source said.

"It had a lot of unconnected activities and was loosely woven, which contributed to its management problems."

The sources said Morgan, Olmstead was also probably a victim of hard times in the brokerage business.