The president of Morgan, Olmstead, Kennedy & Gardner, a Los Angeles brokerage, resigned Thursday, just two days after the firm disclosed that he had sold his 6.2% stake in the firm to cover the margin requirements of his personal trading account.
Michael H. Fusco, 47, who joined Morgan Olmstead in May, described his departure as the culmination of disagreements with the firm over his latitude in changing the focus of its operations.
Officials at Morgan Olmstead refused to elaborate on the resignation but described it as voluntary and effective immediately. The company said G. Tilton Gardner, chief executive of the brokerage's parent, Morgan, Olmstead Kennedy & Gardner Capital Corp., will assume Fusco's duties.
On Tuesday, Morgan Olmstead disclosed in a filing with the Securities and Exchange Commission that Fusco had liquidated his 217,500 shares in the firm for $761,250, or $3.625 a share, in order to meet a margin call. An investor who borrows funds to buy stocks gets such a call when the value of his portfolio falls enough to jeopardize the loans.
One knowledgeable observer of the local investment community Thursday described as "unbelievable" and "embarrassing" Morgan Olmstead's public disclosure that a margin call was the reason it had purchased Fusco's stock.
Pictured as Rescue
"As president of the company, it's not good that he got caught with his pants down," said the observer, who asked not to be identified.
At the time of the disclosure, Gardner was quoted as portraying the transaction as a company effort to help Fusco out of a financial bind created by the Oct. 19 stock market crash and his difficulty in selling a New York condominium.
But Fusco said in an interview that he could have covered the margin call, made Oct. 20, by investing more cash in Morgan Olmstead stock, a step he declined to take because "I found the firm's financial condition different than I believe it was represented to me.
"I chose not to meet that margin call by putting additional cash into my account because I did not want to place additional funds into Morgan Olmstead," Fusco said.
In fact, he said, management's refusal to follow a business plan agreed upon when he was hired prompted him to ask that he be bought out in early October, two weeks before the crash, but Morgan officials refused. The margin call apparently brought the matter to a head.
Fusco said he thinks that management finally relented this week and agreed to buy his shares because the firm realized that it had not lived up to its end of his employment contract and feared legal action.
Fusco Plans 'Recourse'
Morgan Olmstead Executive Vice President Ronald J. Consiglio said it is company policy not to discuss personnel matters and therefore he could not comment on the reasons for Fusco's departure.
Fusco said he bought his 217,500 shares in Morgan Olmstead for about $5.75 a share, or more than $1.2 million. He said he will "take whatever recourse was available to me to correct what I think were my damages."
In addition to the roughly $500,000 difference between the price he paid and what he received for the stock, his alleged damages include the financial implications of a career reversal after leaving a 13-year tenure at Paine Webber to join the Los Angeles firm, Fusco said.
"When I joined Morgan Olmstead in May, I did it after long discussions in regards to a business plan I presented to them," Fusco said. "Because of the acceptance of that plan, I joined the firm. When I got (there) I found that I was not allowed the latitude necessary to execute that plan."
An executive vice president and director when he left Paine Webber, Fusco said he wanted to change Morgan Olmstead into a brokerage that would focus on California.
Fusco objected to Gardner's characterization of his financial problems, saying: "I don't think it was necessary to discuss an associate's financial situation in a public release." He also called the characterization incorrect. "I can afford not to work," he said.