With accused embezzler and stock manipulator Gary Lewellyn still missing, the Wall Street brokerage firms that had extended him $22 million in credit to buy stock in Safeguard Scientifics Inc. have been attempting to cut their losses.
Today, a block of 75,900 shares of Safeguard Scientifics was sold by an unnamed firm at $5 a share.
In a complaint filed on April 2, the Securities and Exchange Commission alleged that the Des Moines stockbroker used funds embezzled from a bank run by his father and credit from several brokerages to purchase 58 percent of Safeguard Scientifics. He drove up the price of the stock from $5.75 a share to $16, but it collapsed last month after trading was suspended by the New York Stock Exchange.
When Lewellyn disappeared March 31, Merrill Lynch, Pierce Fenner & Smith was left with 447,500 shares of Safeguard Scientifics, at an average price of about $7 per share, which Lewellyn had not paid for, says the SEC. In a filing with the SEC, Merrill Lynch, which has a paper loss of $3 million, said it was going to sell the stock at the best price it could get.
But Swiss American Securities Inc., which was stuck with more than 2 million shares of Safeguard Scientifics at an average price of about $7.50 a share, seemed unwilling to swallow its losses.
Swiss American ended up with about 45 percent of Safeguard Scientifics' outstanding shares. According to Safeguard Scientific general counsel Raymond Kraftson, Swiss American's representatives have threatened to use the firm's unwanted Safeguard Scientifics stock to get control of the board of directors.
Kraftson said the threats came from representatives of First Boston Corp., retained by Swiss American's parent company, Credit Suisse. They "said some silly things, like that they would sell off our assets and use the proceeds to buy the stock back from Swiss American," said Kraftson.
"Swiss American is using every angle they can think of to get us to buy our stock that they're holding at a high price," Kraftson said. "But we didn't ask them to lend money to Gary Lewellyn. . .and we're not going to bail them out at the expense of our stockholders."
Efforts to reach George Helwig, president of Swiss American, for comment were unsuccessful.
Other brokerages that gave credit to Lewellyn and got left holding stock were Morgan Stanley & Co., Drexel Burnham Lambert Inc., and Shearson/American Express Inc., according to the SEC.
Meanwhile, the missing Lewellyn, who is being sought by the FBI, has left behind a list of lawsuits that grows longer by the day.
The Internal Revenue Service claims Lewellyn owes $3.2 million in taxes. And Lewellyn's wife, Dena, is seeking control of his property claiming he abandoned her and their two children.