JERSEY CITY, N.J. ? Valerie Red-Horse, the actress turned Wall Street broker, is bringing her firm back from the brink of twin disasters, a spokesman said.
Her financial firm, Native Nations Holding Corp., has reached an agreement to end the merger with the scandal-plagued bond boutique Freeman Securities. It will continue its money management subsidiaries and set up a new broker-dealer called Red-Horse Securities to handle investment banking.
Native Nations was threatened with financial disaster in the aftermath of the Sept. 11 attacks when a long-term series of questionable deals by a senior Freeman official came to light, spokesman Mickey Mandelbaum said Oct. 15.
The blow followed the physical threat of the attack on the World Trade Center, just a short distance from the firm’s two offices, in lower Manhattan and Jersey City. All 55 employees were safely evacuated, but many suffered emotional trauma, Red-Horse said.
The deals were part of a long-term pattern, not the single transaction previously reported, Mandelbaum disclosed. Although the identity of the Freeman employee who made them has not been publicly disclosed, Mandelbaum said he was ‘a senior person at Freeman Security,’ someone in a position to conceal the activity.
The government has launched a formal inquiry. It could uncover a major financial scandal which Red-Horse can claim to have helped bring to light.
‘Native Nations has always prided itself on being the best of corporate citizens and we are committed to full cooperation with the government in their investigation of these transactions of which we have been the victims,’ she said in a written statement.
Mandelbaum told ICT the improper stock loans were concealed from Native Nations when the firm, the first American Indian-owned securities dealer, acquired Freeman in January. He said he could not discuss the transactions in detail because they are being investigated by the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD).
He said the investigation was triggered by an internal audit launched by Native Nations when it began to suspect some of the dealings of its new acquisition. ‘What we thought was OK was not what it seemed,’ Mandelbaum said.
Suspicions escalated into a financial crisis with the terrorist attacks on the World Trade Center in circumstances international media are calling ‘bizarre.’
One of the allegedly improper deals involved a loan apparently secured by stock in GenesisIntermedia Inc., a high-flying telemarketing firm controlled by the Saudi Arabian wheeler-dealer Adnan Kashogghi. Over the past two decades, the well-connected Kashogghi has inspired countless novels of international intrigue with his arms deals and lavish party giving.
In the turmoil of the attacks, investors shunned Kashogghi’s stock. Its value dropped sharply, finally falling 30 percent in one day. Trading in the shares was suspended. But the Freeman official had used the shares to secure a transaction with Minnesota-based MJK Clearing. After the price drop, MJK demanded $60 million from Native Nations, apparently to cover the lost security.
Native Nations was caught in the middle of the transaction, Mandelbaum said. ‘We were owed a payment,’ he said. Although he couldn’t describe the transaction in detail, he said the original party ‘defaulted on us.
‘We were waiting on that to give the payment to MJK.’
The default plunged the Freeman division into liquidation. By splitting from it, Red-Horse is on the way to salvaging her holding company, which will reclaim the name Native Nations Securities.
The holding company will retain two money-managing subsidiaries, Native Nations Asset Management and Freeman Capital Management, which remain in business.
The new broker-dealer Red-Horse Securities Inc. will pick up the investment banking business. Native Nations Holding is in the process of registering the new firm, Mandelbaum said.
In the interim, the company release said, ‘Native Nations continues to assist the authorities with their investigations and is also cooperating with the Securities Investor Protection Corporation and all affected market participants to facilitate an orderly and fair resolution of the market problems caused by these transactions.’
‘We are fully committed to cooperating with the government in their investigation of these transactions and those responsible, Red-Horse added.
‘At Native Nations Holdings, we continue to build the first highly competitive, Native American-controlled, full-service investment bank and we intend to do this while adhering to the highest ethical standards.