They seemed like a dream team
Financial advisors Steven Kolinksy and Stephen Hill, business partners since 1991, had a client list stacked with celebrities. It was an A-list roster that could stir envy and loathing in many other advisors. From their offices in Woodcliff, N.J., they managed the substantial fortunes of a number of Major League Baseball players — among them former Yankee Rondell White and a host of former and current Mets players: Cliff Floyd, David Wright, Todd Hundley and Gregg Jefferies. It was the kind of client list that could generate major attention. The kind of attention, you'd hope, that would translate into more advisory business.
Instead, Hill and Kolinsky's budding sports practice came crumbling down after White and Floyd filed a lawsuit against the partners in May 2010. The suit alleged the ballplayers lost $2.5 million in a real-estate deal the brokers set up in 2007 to develop a vacant seven-acre site abutting New Jersey's Hackensack River — a property in which the brokers had also invested.
The ballplayers' suit alleged that Hill “guaranteed that the Whites would not only get all of their money back quickly, but would make a substantial profit on their investment,” because a buyer had already been secured. White and Floyd sought $12.25 million in compensatory, punitive and exemplary damages. Four others were listed as alleged co-conspirators. The lawsuit named other prominent MLB players as investors in the deal, as well: David Wright, Todd Hundley, Gregg Jefferies and Jason Marquis. Floyd separately claimed in another suit that Hill inappropriately transferred money from his account into an investment in a dental company.
But what really wreaked havoc on their reputations and business, says Kolinsky, was when the press got wind of the the lawsuit. At 7:37 p.m. on May 4, 2010, just hours after the lawsuit was filed, Sports Illustrated published a story online about alleged wrongdoing in the firm's affairs, and the story was sympathetic to the athletes. “Ex-players file lawsuit after being bilked in N.J. real estate scam,” read the original headline on Sports Illustrated's website, says Kolinsky. Only when he called to protest his innocence did the magazine add “claims they were bilked” to the headline, he says. (Asked about the change of headline, a spokesperson for Sports Illustrated declined comment.)
“In the fall of 2007, when Rondell White's longtime financial adviser stopped by his rental apartment in Minneapolis, Minn., the freshly retired Twins outfielder was skeptical. White often was,” the opening to the Sports Illustrated story reads. “During his playing days, the 15-season MLB vet and 2003 All-Star had earned a nickname for his fiscal frugality: ‘No-Risk Rondell.’ But his adviser, Stephen E. Hill, of the New Jersey-based Kolinsky Hill Financial Group, offered a seductive description in pitching a new, multi-million-dollar real estate deal, which Hill had previously broached by phone. ‘A slam dunk,’ White and his wife, Zanovia, recall Hill saying. ‘A no-brainer.’” The story noted that the New Jersey Office of the Attorney General was also investigating the case. The author wrote that messages left for Hill and Kolinksy were not returned that afternoon.
Kolinsky says he first learned of the damaging story long distance from his son who was away in college. “He said, ‘Dad, you are being sued?’” recalled Kolinsky. “I said, ‘What are you talking about’? He said there is a big article in Sports Illustrated.” His son was not the only one who read the article.
After Sports Illustrated picked up the story, a media frenzy ensued. Local and national media, including USA Today, The Wall Street Journal, the New York Times, BusinessWeek, the Daily News, the New York Post, ESPN, ABC and CNN reported the story. It practically went viral. A number of outlets ran a piece by the Associated Press. “Report: Mets' Wright and at least five MLB players victims of investment fraud,” blared USA Today. “Baseball stars allege NJ real estate fraud,” the Wall Street Journal headline read. With characteristic flare, the New York Post put it thus: “$12M Suit Over Error$.”
In December 2010, seven months after the suit was filed and the Sports Illustrated article appeared, the Bureau of Securities in New Jersey announced disciplinary charges against Kolinsky and Hill. A third broker, sales rep Roy Glassberg in Florida, was sanctioned for his alleged connection in Hill's money transfer. Both Kolinksy and Hill had violated state securities laws and regulations in their affairs with the MLB players, according to the charges. Regulators accused Kolinsky of not properly disclosing his outside business affairs, a failure to supervise and to manage customer accounts.
According to the bureau's “consent order,” Stephen Hill, Kolinksy's former partner, arranged for money transfers totaling some $1.8 million from Floyd's account in 2008. A portion was intended as an investment by Hill for his client in a dental product company, according to the charges. “This culminated in Hill's brazen misappropriation, which benefited his wife and his business partner,” said Marc Minor, then chief of the New Jersey Bureau of Securities. “Kolinsky ignored his supervisory duty to uncover undisclosed dealings and bogus documents that set the stage for Hill's acts.”
The bureau questioned the procedural steps, saying an employee wrongly certified Floyd's signature in his absence. Kolinsky says the practice, though not administratively correct, was then a standard custom with players busy on the road. Kolinksy was the representative on Floyd's account, regulators say. For his part, though, Kolinsky says Hill was in charge of the athlete's accounts. Hill was not available for comment for this story. His attorney, Craig Provorny, has said the accusations against his client would be proven false.
As for the real estate deal, Kolinsky claims it fell apart after the credit crisis erupted, something the brokers couldn't have foreseen. The property hasn't been sold; nor has any development occurred, Kolinsky says. One source familiar with the deal said if the real estate market rebounds, then all parties to this investment could potentially make money.
“All investors, including Messrs Kolinsky and Hill, lost money,” Kolinsky and Hill responded in a statement last year to the federal lawsuit. “Messers Kolinksy and Hill received no management fees, or any other form of compensation. The lawsuit filed by White and Floyd ignores these facts and makes reckless and unfounded allegations.”
The ballplayers' efforts to recover the alleged multi-million dollar losses have so far been fruitless. The lawsuit naming Kolinsky was dismissed in New Jersey federal district court this past May by Judge Faith Hochberg. The judge, at turns, sounded almost flabbergasted. “This Court has previously admonished Plaintiffs to consult an attorney familiar with securities law,” a footnote in her order read. No decision on Hill, who has filed for bankruptcy, was rendered. The claims against him are “stayed.”
Meanwhile, the security fraud and criminal prosecution case brought by the New Jersey Bureau of Securities was settled without Kolinsky admitting or denying any of the allegations. Kolinsky was fined some $60,000. That could go as high as $80,000 if payments are missed. Under a consent order, Kolinksy is subject to “strict supervision” from his broker/dealer, Allied Beacon Partners.
Hill is in decidedly hotter water. He had his license suspended and was fined $210,000. Hill was accused by regulators of encouraging one client, identified as “C.F.” to invest $103,000 in a dental company, Snap-On Smile. But he then allegedly “siphoned” away about $1.8 million from Floyd's account to an investment channel for this dental company “through fraudulent transfer documents and misrepresentations.” Hill and his wife allegedly had an interest in this investment.
One legal source said it was unusual for the Bureau of Securities in New Jersey, a governmental agency, to take its action in the Kolinksy and Hill case. “What you had here was in my opinion extraordinary,” said the source. “You really only had two people who had sued. It was a private dispute. It wasn't in the public interest to waste taxpayers dollars.” The source continued: “Some would say it was an opportunity for the bureau chief to pander to the press. He got a ton of profile out of the case.”
Gerome (Jerry) Selvers, a former attorney at the Securities and Exchange Commission, who represented Kolinsky, was equally blunt. “They took what at most was [his] failure to supervise and then uglied it up. From this failure to supervise there was this miserable media nightmare for him,” he said.
Selvers also said he thinks the state of New Jersey overreached. “It painted a picture that was unreasonable and unjustified. It really did have damaging adverse consequences on Steven who has had an unblemished record in the securities.” (The New Jersey Bureau of Securities said some 80 financial professionals in the Garden State were under a heightened supervision agreement as of early September.) A spokesman for the bureau declined comment.
Today, Kolinsky is picking up the pieces. He split from Hill soon after the lawsuits and is back in business as president of Kolinsky Wealth Management in Woodcliff. Kolinsky's new firm today has in excess of some $100 million in individual client assets under management. It is also the advisor on 401(k) plans with an estimated value of $100 million.
Kolinsky said he lost as many as four clients in the fallout from the lawsuit, costing him an estimated $250,000 in lost revenues. He spent another $400,000 on legal fees. His business partnership with Hill was torn asunder. His referral business was destroyed. “I am 100 percent referral from CPAs,” Kolinsky said. “They have told me when they had given my name out in the last three or four months, they got [negative] feedback from clients. ‘Are you nuts? The guy was not licensed.’” (Kolinsky'slicense had already been restored.)
All because they got mixed up with some famous ballplayers — the kind who could command public attention, says Kolinsky. He sued the ballplayers for defamation of character but legal sources say that has been effectively sidelined.
In desperation, Kolinsky said he recently hired the online company, Reputation.com, which specializes in reputation building for clients. The case of Kolinsky and his partner illustrates one potential downside of an advisory practice that caters to celebrities: Some reporters are star-struck if the story concerns a famous ballplayer or Academy Award winner. They know that in a culture obsessed with celebrity, stories about stars who've been wronged will excite readers.
Some other FAs in the celebrity game agree: Yes, the business can be financially rewarding, fun and exciting. Sure, invitations to star-studded parties attended by Angelina Jolie and Brad Pitt, sports celebs and other VIPs can be a thrill, if you like that kind of thing. But watch your back.
“You got to be careful who you take on as clients,” advised Jeff Fishman, a Los Angeles-based financial advisor to the stars. He counts the actor Scott Patterson, known for his role as Luke Danes in Gilmore Girls, among his clients. “It is important to have an initial meeting to determine whether your prospective celebrity clients are a right fit for your firm,” he said.
Fishman, anwith $400 million in AUM, has no time for actors with a reputation for temper tantrums. Demanding egos are a deal breaker. “It is not worth dealing with them, obviously,” he told Registered Rep. “I think it is really important to pick and choose the right people to work with. We are really looking for people grounded with reasonable goals, people who have the right priorities.”
Because of their inherent career highs and lows, earning power can fluctuate wildly among celebrities. Fishman therefore tends to set them up with emergency “rainy day” funds. He also recommends income-producing assets for long-term growth. He steers his clients “conservatively” into the likes of stocks, bonds, and mutual funds.
To be sure, Fishman is familiar with real estate deals. He said some celebrities have an attachment to trophy properties — and are often tempted to pick up another on a whim. Fishman will often discourage this, especially if the property will sit mostly idle. “Understand what the person needs while at the same time recognizing that while they could be at the top of the hill today, they could be at the bottom tomorrow,” he said. That's one way to avoid possible future heartache.
James Kennedy, an advisor based in sunny Manhattan Beach, Calif., next door to Hollywood, said specializing as he does in entertainers, professional athletes and successful entrepreneurs, has its rewards. But he cautions readers of Registered Rep.: “There's a huge risk of litigation.” Kennedy said his boutique firm is very careful about keeping records and proper documentation on every recommendation.
Kennedy says he aims to help celebrity clients who've come into “sudden wealth” to preserve it. He proposes prudent spending habits. He says family, girlfriends and class buddies do in fact come out of the woodwork when a celebrity makes big money. “They have a target on their chest.”
Maybe there's a lesson here for FAs who've been sued by celebrities. “We are as conservative as you can get,” Kennedy said. “We focus on annuities, bonds and insurance policies.” Perhaps equally important: choose your business partners very carefully.
Kolinsky has this warning: “You know, everybody wants the big elephant as the client. Well, I was there. I had the biggest ballplayers in the country for 15 years. Now I don't have any. These elephants can kill you.”