525 Washington Street
M.H. Meyerson & Co., Inc. is a market maker in more than 4,000 securities traded on the NASDAQ exchange and over the counter (unlisted on exchanges). In addition to executing trades for retail customers and brokerages (mainly the latter), this broker-dealer also buys and sells securities on its own behalf and is a full-service financial and investment-banking firm, with individual and institutional accounts. As an investment banker, it makes private placements of equity securities and assists in the structuring of public offerings of such securities. M.H. Meyerson also participates in municipal-bond offerings, offers clients the ability to participate in such placements on a syndicated basis, prepares research reports, and renders financial advice.
Profiting in the "Go-Go" Years
Marty Myerson was selling cars for Baron Motors, a Lincoln-Mercury dealership in Great Neck, Long Island, during the late 1950s when he noted, as he told George M. Taber of BUSINESS News New Jersey, that some of his young customers came in "every 90 days and bought a new car just to change the color." After finding that all these high rollers were stock traders on Wall Street, he decided to try the financial district himself, starting out in 1959 at the bottom, as a messenger at the age of 28. A year later, with $3,000 borrowed and $2,000 of his own money, he opened a Manhattan brokerage office with one employee, a bookkeeper. Meyerson saved start-up costs by not paying himself a salary, relying on his wife, a kindergarten teacher, to make ends meet.
Meyerson's company, M.H. Meyerson, moved across the Hudson River to Jersey City, New Jersey, in 1967 to avoid an increase in the stock-transfer tax by the state of New York. This action was believed to be the first of its kind following the imposition of the controversial increase, which went into effect in mid-1966. The firm was buying and selling over 300 low-priced securities for its own account at this time and had 19 employees. Interviewed by the Wall Street Journal, Meyerson conceded, "We have private wires to 40 Big Board firms and over-the-counter houses. Each wire costs us $4 a month here, and will cost $25 in Jersey City." He said that his firm's capitalization was more than $200,000 and its trading volume about 1.6 million shares a month. By the mid 1970s many other OTC brokers had followed Meyerson to Jersey City.
Before early 1971, the over-the-counter (OTC) market, consisting of securities not listed on any of the six U.S. exchanges, was virtually impossible to monitor. In The Go-Go Years, John Brooks' popular account of Wall Street in the 1960s, the author explained that before the introduction of the NASDAQ computerized system, "There was no such screen on the trader's desk; to get the best price on a thinly traded stock ... he might have to telephone a dozen other firms to get their quotes, engage in shouted conversations with other traders in his own firm to find out what kind of bids and offers they were getting, and finally agree to a price that would never be reported to the public at all. In such a market, the opportunities for manipulation were endless."
M.H. Meyerson thrived in this climate. At its peak during the late 1960s the company employed some 360 people, mostly in paperwork backroom operations, and opened offices in several big U.S. cities. According to Michael Silvestri, later the company's president, Martin Myerson introduced one of the first traders' contracts on Wall Street in 1968, a practice that he described as "common place" to Patricia A. Meding of Today's Investor. "We did that," Meyerson added, "because all too often, traders would take positions with exposure to themselves that cost their firms a lot of money. ... We felt they would trade more wisely if they were personally involved and responsible for their losses. ... That philosophy has worked."
A More-Regulated Marketplace: 1970-90
The unregulated period of OTC trading ended in February 1971, when the National Association of Securities Dealers introduced the NASDAQ computerized communications system, which collected, stored, and disseminated price quotations from a nationwide network of dealers, thereby narrowing the spread between bid and asked prices. In addition to losing some of their profit margins, the wholesalers were suffering from the bear market that struck Wall Street in 1970 and from competition for orders from full-service brokerage firms. By late 1971 M.H. Meyerson & Co. had closed its Swiss branch and was poised to shutter its offices in Boston, Chicago, Los Angeles, Philadelphia, San Francisco, and Washington. In November of that year Meyerson said that his company, which was making markets in some 500 to 600 unlisted securities, planned to reduce that number by 50 to 60 percent. (As a market maker, M.H. Meyerson was dealing primarily with other securities houses, buying and selling OTC securities for them in return for assuming the obligation to maintain an orderly market-that is, finding sellers to meet a sudden buying spree and, conversely, buyers to meet a flood of sell orders, even if the firm had to put up its own capital.)
The OTC wholesalers were again shaken by the 1973-74 bear market and federal legislation, intended to protect employee pension investments, that led many institutions to sell thinly capitalized OTC stocks. M.H. Meyerson appeared in the pages of the Wall Street Journal in 1977, when the federal Securities and Exchange Commission filed a suit alleging that the company, and Meyerson personally, had bribed Swiss bankers to inflate the stock price of Micro-Therapeutics Inc. for the purpose of making a public offering at the manipulated price. The SEC also accused M.H. Meyerson of destroying brokerage records that the agency sought to inspect. Micro-Therapeutics, which had ceased operations in 1976 and whose stock was later described by a federal judge as "worthless," made a hair tonic alleged to be a remedy for baldness. This judge found the defendants guilty in 1983 and ordered the company and Meyerson to pay as much as $1.6 million. The case was settled the following year. Later M.H. Meyerson also agreed to pay fines in order to settle violations for entering stock quotations with excessive spreads between the buy and sell prices, and for allowing a customer to sell shares short without first checking if the stock could be borrowed.
Because, according to Meyerson, of the restraints his company imposed on its brokers, during the stock-market crash of October 1987, "This firm had only seven margin calls," he told Meding. The company's director of research quoted Meyerson in these words, "In October 1987 when the market dropped over 500 points in one day, we not only knew that evening where the firm stood, but we had our plan of action in place the next morning by 9 a.m. before the market even opened. We did the same thing again in February 1988 when the market had a correction. ... We have the facts and information readily available, and we have structured the firm to survive."
The National Association of Securities Dealers, however, took a dimmer view of the activities of OTC market makers such as M.H. Meyerson during the October crisis, finding that during the blizzard of selling orders many of them simply became incommunicado, reneging on their obligation to maintain orderly markets. In 1988 the association established new rules that required its members to continue executing orders even in the face of a giant sell-off. Orders made through NASDAQ's Small Order Execution System would now be distributed among market makers on the basis of the highest bid and the lowest asking price. Those firms that did not execute the orders would be suspended as a market maker for 20 trading days.
Public Company: 1994-2000
M.H. Meyerson was trading about 80 million shares of stock a month in early 1994, when it was a market maker for about 2,200 securities. In what were usually dealer-to-dealer (wholesale) transactions, the company, on behalf of its proprietary trading accounts, carried long or short trading positions in these securities. Its 40 traders were compensated by receiving a fixed percentage of the profits from trading after deduction of general expenses. Their contracts provided for individual liability for any funds owed the company relating to losses, if any, incurred from trading activities. Retail customer accounts were being serviced by 35 registered representatives. The investment-banking division had, since 1990, been the managing or co-managing underwriter of nine initial public offerings and two private placements that raised in excess of $68 million. M.H. Meyerson's revenues came to $16.04 million in fiscal 1993 (the year ended January 31, 1993), of which securities transactions accounted for 70 percent, underwriting for 22 percent, and commissions for 6 percent. Revenues rose to $18.74 million in fiscal 1994, of which securities transactions accounted for 87 percent, underwriting for 11 percent, and commissions for 2 percent. Net income came to $822,607 in fiscal 1993 and $1.43 million in fiscal 1994.
M.H. Meyerson made its initial public offering of stock in January 1994, selling 2.3 million units for $4 each, with each unit consisting of one share of stock and one redeemable warrant. Net proceeds to the firm came to $7.58 million, allowing it to retire its long-term debt of $8.52 million. Three months after the offering, the Meyerson family retained 45 percent of the stock. Forbes staffer Amy Feldman took a jaundiced view of the offering, noting the firm's previous disciplining by federal authorities and the checkered career of its underwriter, Stratton Oakmont, Inc., which was being sued by the Securities and Exchange Commission for securities fraud and coercive sales tactics. Stratton Oakmont subsequently went out of business.
In fiscal 1995, M.H. Meyerson's revenues fell to $14.47 million, and the firm lost $597,854, an outcome Meyerson blamed on the failure of a clearing house and to "erratic markets." Its stock never traded above $2.88 during the calendar year and fell as low as 88 cents-well below book value. The firm bought back some 300,000 of its own shares about this time. One believer in its future was Today's Investor, which called the company "the best kept secret on Wall Street" and gave it a strong buy recommendation during the first part of 1996. M.H. Meyerson returned to profitability in fiscal 1996, when its revenues rose more than 50 percent. Revenues almost doubled in fiscal 1997, reaching $41.89 million, and net income soared to $1.82 million. In 1996 the firm moved from Montgomery Street to bigger quarters on two floors of the Newport Tower, affording its founder a marvelous view of lower Manhattan from his corner office on the 34th floor. Meyerson was not inclined to let the altitude go to his head, however. Asked by a shareholder at the annual meeting whether the company was going to leverage itself to increase its potential for profits, he replied that in his 36 years in the business more than half of all brokerage houses had failed, usually because they had gone heavily into debt.
Martin Meyerson's caution was well advised, for in fiscal 1998 the firm's revenues dropped by about 50 percent, and it suffered a loss of $1.72 million. Management called new order-handling rules a significant factor in the company's loss of trading revenue. (During 1997, the Securities and Exchange Commission mandated changes in NASDAQ trading that had the effect of reducing the spread brokers maintained between bid and asked prices.) A partial recovery the following year brought M.H. Meyerson back into the black. In February 1999, the company issued a press release announcing plans to offer trading over the Internet by year's end. Suddenly the firm's stock, which had been trading at below $1 a share as recently as three months earlier, shot up as high as $21.88. Two days after the announcement, Meyerson's two sons, the firm's president, and its controller sold $1.2 million worth of stock, while the founder told Business Week that he had himself sold "several hundred thousand" shares. Two weeks later, the value of the stock had retreated to about $5 a share. (It was trading at about $1 a share in the summer of 2001.)
Meyerson enjoyed its best year ever in fiscal 2000, earning $3.04 million on revenues of $62.12 million-almost double the previous year's total. Management attributed its great increase in volume in part to the stimulus inspired by trading on the Internet. The company also reported that during the 1990s it managed or co-managed more than 30 initial and second public offerings of stock and over 20 private placements, thereby raising more than $460 million in capital. In addition, its syndication activities resulted in being included in nearly 200 additional equity underwritings during this time period. In fiscal 2001, however, the company lost $508,272 on revenues of $72.39 million. Clearing charges rose by 55 percent-over $10 million, which management attributed to increased trading volume.
M.H. Meyerson in 2000 and Beyond
Wholesale trading and market making remained the major part of Meyerson's business in fiscal 2001, accounting for 92 percent of its revenue. As of April 1, 2001, the firm was a market maker in over 4,000 NASDAQ and over-the-counter securities, standing ready to buy or sell a particular security at the national best bid or offer. Underwriting accounted for 3 percent of revenue. Among Meyerson's activities in investment banking, the company structured public offerings and made private placements of equity securities. Commissions comprised another 3 percent of revenue. The firm was handling about 14,500 retail customer accounts, consisting of both individuals and institutions. Meyerson also was providing execution services, primarily to retail service firms, online securities brokers, banks, and hedge funds seeking to purchase or sell securities on behalf of their retail customers.
In addition to these functions, since 1997 Meyerson had been acting as manager or co-manager of municipal bond offerings and as participants in selling groups. It also advised clients on bonds and offered them the ability to participate in syndicate placements of these securities. Another division was maintaining accounts with hundreds of investment and mutual funds, banks, investment trusts, and other institutional investment vehicles. This division also was preparing and disseminating research reports on publicly traded companies that Meyerson believed represented special opportunities for purchase and investment by its clients and others.
The electronic-brokerage subsidiary formed in 1999, eMeyerson, began offering online brokerage and investment information and related data in 2000. This subsidiary also offered other financial institutions Internet-based business-to-business financial products and solutions. M.H. Meyerson owned 54 percent of the capital stock but sold it in July 2001 to ViewTrade Holding Corp.
M.H. Meyerson & Co. had no long-term debt in fiscal 2001. As of April 2001, Martin H. Meyerson, who was still chairman and chief executive officer, owned 27.9 percent of the company's shares, and Jeffrey E. Myerson owned 5 percent. Electronic Trading Group, L.L.C. owned 13.8 percent.
Principal Competitors: Bernard L. Madoff Investment Securities Inc.; Herzog, Heine Geduld Inc.; Knight Trading Group Inc.; Mayer & Schweitzer, Inc.; Spear, Leeds & Kellogg, LLC.