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To Stanford and back: John Orcutt’s ‘incredible’ journey

It was shortly before noon on Feb. 17th when John Orcutt, only a month into his new position as a Managing Director of the Stanford Financial Group, returned from a morning meeting to the company’s posh offices on Beachland Boulevard. “The employees looked like they had just lost a loved one,” Orcutt recalls. On TV, they had just seen federal marshals raid the company’s Houston headquarters.

Before the day was out, the U.S. Securities and Exchange Commission had accused the owner of the Stanford Financial Group, billionaire Allen Stanford, of masterminding an $8 billion fraud based on above-average-yield certificates of deposit issued by the Antigua-based Stanford International Bank Ltd., a Stanford Group affiliate.

A federal judge quickly named a receiver to seize all assets of the bank, the Stanford Group, and Stanford personally. The receiver immediately asserted control of the Stanford offices in Vero Beach and across the country, freezing the assets of the firm’s clients, who could neither make withdrawals nor transfer their funds to another broker.

More than 75 Vero Beach families, who had followed Orcutt from his previous position at A.G. Edwards to Stanford and transferred millions of dollars in securities to his new firm, suddenly were cut off from access to their life savings. In the wake of the Madoff affair, fear was rampant.

The receiver instructed Stanford employees not to talk to their clients. “But when you have 75 families that have moved their life assets into you, and some of them have been clients for 24 years, you do call them,” Orcutt said. “It doesn’t really matter what anybody tells you. You call them – and try to give them as much information, as much reality, as you possibly can.

“It was hand holding, day in and day out of that week, as best we could, and ending up on the couch in the fetal position every night, going ‘Whoa, what have I done?’” Orcutt said.

But the good news was none of Orcutt’s clients had ever even been offered one of the Antigua CDs, and none of the assets of Orcutt’s clients ever was actually in Stanford’s direct control. The transferred stocks, money market accounts and cash were in fact held by Pershing, LLC, a custodial firm owned by Bank of New York Mellon. Last week, Stanford clients regained control of virtually all of these assets.

“So now, the accounts of all my clients have been released,” Orcutt said. “But from the Feb. 17th to the 20th, all my assistant and I did was call clients, tell them all their money is being held by Pershing, not comingled with Stanford, that their assets were very safe.

“We actually had to have this conversation three, four five times with clients sometimes before it really sank in that Stanford didn’t have their money comingled with Stanford assets. No matter how we told the story or tried to explain it, it took some time for people to feel a comfort level that they weren’t going to lose all their assets.”

And now, Orcutt, too, is coming out of the far side of this nightmare. He has accepted an offer to open a new office in Vero Beach for Stifel Nicholaus, a century- old St. Louis-based investment firm that he had turned down before joining Stanford in part because he did not want to set up and run a new office.

“I would have saved a lot of stress to a lot of people if I had done this in the first place,” said Orcutt. Here is the story of John Orcutt and his “incredible” 31 days at Stanford.

John Orcutt came to Vero Beach in the mid-1980s, a young Ph.D. marine biologist from Michigan who decided during a two-year fellowship at Harbor Branch that this would be a nice place to settle down – and that he really would rather be “in the brokerage business.

“You pretty much work for yourself, and your results really depend on how well you do yourself as an individual,” he said. “That appealed to me. I basically knocked on every brokerage firm’s doors in town and no one would hire me. And then I found a little A.G. Edwards’ office over in the 2001 building.

“They had four or five empty desks, and it still took about four interviews and four hours of written aptitude tests and personality exams, but I finally got the job,” Orcutt said. “I started in August of ‘84 and I went through their training program and I was with A.G. Edwards for 23 years. It was a wonderful place to work.”

But a year ago, A.G. Edwards was taken over by Wachovia Corp. Orcutt, who had been the A.G. Edwards branch manager for a decade, decided it was “time for me to make a change.”

Six firms were knocking at his door, but the only two he said he “connected to” were Stifel Nicholaus and Stanford.

“It came down to me to choosing between these two particular firms,” he said.

“I initially felt the best fit was with Stifel Nicholaus out of St. Louis,” Orcutt said. “I flew to St. Louis and met with a lot of the Department heads – the head of the bond department, the mutual fund department, etc – and if felt just like A.G. Edwards did maybe 12, fifteen years ago. Smaller in size, real people oriented, not a lot of middle management but with really good technology, really good research, and it felt pretty good.”

Then he went to Houston and visited Stanford’s home office. “I interacted with my regional boss a lot,” he said, Boca Raton-based Scott Chaisen. “Top notch – to this day, a very, very special individual. Even with what’s happened, I have a very, very warm place in my heart for him.

“And the Stanford Brokerage side, the Stanford Group, felt really professional — great employees, really good oversight in terms of compliance, and the way they did things on that side. It really came down to the only uncertainty was this bank sitting out there – the international bank in Antigua.”

Orcutt said he didn’t really understand the Antigua bank, “really wasn’t interested in it, but I really liked the feel of the brokerage firm.

“If you went back, did your due diligence, looked at all brokerage firms and what they’ve been fined for, or what the disgruntled clients are saying and all of that, you would have the Stanford Group sitting over here and basically been fined tens of thousands of dollars over the last two or three years. And then you have all these major firms that have been fined hundreds of millions of dollars.

“And the other thing is, the regulators had looked at this (Antigua) CD a couple of years in a row before I came on board, and really the only thing they had hung their hat on was there was one disclaimer sentence they felt should have been on the product information and fined Stanford $10,000 for that.”

During his visit to Houston, Orcutt encountered the firm’s founder, Allen Stanford, in the corporate cafeteria. “I just had a couple of words with him, and he looked me in the eye, and said a couple of cordial words back. He walked around the whole cafeteria and spoke to everyone at every table. He was very gracious.”

In late fall, Orcutt decided to go with Stanford over Stifel Nicholaus.

“I was not particularly interested in managing other brokers or employees any more, and I wasn’t really that interested in starting a brand new office from scratch, and Stanford had a nice location – they had a wonderful platform to do what I really wanted to do for my clients,” he said. It was kind of a life decision to go with them over Stifel Nicholaus.”

In November and December, Orcutt began telling friends and clients of his decision, even though he felt he could not change firms until after the first of the year.

“The CFO of Stifel Nicholaus and I got to be very close. And I called him and said I had made a decision to go to Stanford. And he was very gracious. He said if for any reasons I wound up not happy at Stanford, he’d be glad to talk to me again. And I never forgot that,” Orcutt said.

During December, with the Madoff scandal much in the daily news, the Securities and Exchange Commission renewed its scrutiny of Stanford. “At some point in there, I knew they were continuing – they kept continuously looking at the CD, but that had also happened a year or two years before,” Orcutt said.

Orcutt said he finally set the date of January 9th for the move to Stanford.

“There is a formal way in the industry that people leave a brokerage firm,” he said. “Essentially, you really don’t give advance notice. But there are certain materials and information you are allowed to take, and it’s very limited. You are allowed to take the names of your clients, their address, phone number, email address – but you should never take really any more information than that. No personal information. So at 2:30 in the afternoon on Jan. 9th, I faxed my resignation letter to the home office, and my assistant and I went to the Stanford office.”

He said Stanford, in a display of “real professionalism,” had six or seven people waiting to help him in transferring his clients, putting packets together, helping mail out the packets – “really, really quality employees.”

“Right after I got to Stanford, the regulators came into a lot of Stanford offices, and were really, really going through paper work,” Orcutt said.

“I knew the regulators were in all these offices and doing that, but that is what regulators do. They just show up in the offices of all brokerage firms like that. I didn’t know the intensity of it, and I still don’t, really,” he said. The regulators did not visit the Vero Beach office.

Did Orcutt have a sense during this period that he may have made a mistake?

“Really, things were just moving for ward pretty strong and efficiently here locally until February 17th,”he said.

“There was a conference call we had discussing the bank of Antigua, and that there were a good number of people that were trying to get money out of their CDs. And they had been redeeming these CDs pretty actively,” he said.

“I really didn’t understand the undercurrents of some of this at the time, being so new to the company and not having a lot of interest in the product, but they were talking about how they were going to liquidate positions and pay off CD holders over time.

“You have to understand that John Orcutt, his assistant and the helpers were pretty focused on taking care of our clients at that point, and their needs and activities were much different than what was going on with the Stanford activity.”

“There is a lot of paperwork that has to be done to transfer a brokerage account,” he said. “We would talk to the client, explain the situation, if they were willing, they would come in, and open up new account information, fill out the paperwork.

“We would work through that, and then they would sign a transfer form – and once that transfer form goes to Stanford home office, then it gets approved by management, and then it is delivered to the other brokerage firm where it is transferring from, and then there is a 10 business day process and then those assets are transferred, in this case to Pershing, which is the clearing house, the custodian for all these assets.

“So what we did for three and a half weeks was meet with clients, they were comfortable, they would do the paperwork, and transfer the assets in,” Orcutt said. “We started that on Jan. 9th. Then because A.G. Edwards and Wachovia were converging their computer systems, they shut down the transfer system on Feb. 6th. And it was closed from Feb. 6th through Feb. 17th. So we had stacks of transfer papers filled out and we couldn’t do anything with them. And then there were some transfers in process during this time.

“So there was a time period in there in which all transfers were stopped— there was no activity – and then it was like on Feb. 17th that the news came out on Stanford that regulators had taken over the office. So in hindsight, that was very, very beneficial to a lot of my clients, and on the 17th, we were able to stop some transfers.”

The days from the 17th, when the news broke, to the 20th, when the Vero Beach office was locked, were bizarre, to say the least.

“On the 19th, we were scheduled to have Stanford’s chief economist come down from Washington, DC for an event over at Gloria’s hotel,” Orcutt said. “We had 110 people coming to hear him, a lot of the professionals in town were coming, a modest number of my clients, who I thought would get a lot out of it, and a pretty significant number of investors were on the list to come. We obviously had to cancel it.”

Orcutt said that while he felt confident the assets of his clients were safe at Pershing, the fact that they were temporarily frozen was a problem for some clients.

“We didn’t know how things were going to work out – we didn’t know anything more than the public knew.

“It was very difficult,” he said, “because there were a dozen or so accounts that really needed some cash pretty quickly. And everyone kind of that worked that out. But that was my biggest concern – to have locked up the money of these 75 families, a few of which needed cash pretty quickly, and I had no solution to that problem.”

Then on March 4th, the receiver announced that accounts of under $250,000 that were held by Pershing would be released, and eight days later, he announced that virtually all accounts – except those linked to specific Stanford employees or activities – would be released for transfer.

“It was a very, very unfortunate situation, but it is all going to work itself out okay,” Orcutt said.

As for those controversial CDs, Orcutt said the question of selling Antigua CDs to his clients never came up during his short tenure at Stanford.

“The only trade I made in 31 business days at Stanford – the entire time – was I bought one client 400 shares of Procter & Gamble,” he said. “I made no other trade or purchase.”

Even as Orcutt was attempting to reassure clients, he and his family were worrying about their own future. “My family has been unbelievably supportive, but I can tell they have been very frightened,” he said.

After the Stanford crisis broke, four other brokerage firms contacted him about possibly joining them, but Orcutt had a different notion. He reached back to the CFO at the firm he had turned down months earlier, Stifel Nicholaus.

“I had already kicked the tires pretty hard” in those earlier discussions, Orcutt said. “It was a model of a brokerage firm I understood. Again, it’s an A.G. Edwards model that I really liked.”

Stifel Nicholaus was receptive to resuming negotiations, and two weeks ago (at the urging of his wife) Orcutt flew to St. Louis and concluded the deal.

A week ago Monday, his license was transferred from Stanford to Stifel, the firm quickly took a six-month lease on an office in the Bridgewater complex on Indian River Drive, leased some furniture, and by the end of this week, expects to have the phones and information technology hooked up and ready to go.

“My assistant of nine years has stuck with me through this, and we have brought on one of the people from Stanford – whose professionalism was wonderful — to assist us,” Orcutt said. “The game plan is, we have already been transferring Stanford accounts out of Stanford into Steifel. We are trying to help clients who have been so loyal out of Stanford as efficiently as possible, and by the time their money arrives through the transfer system that takes about two weeks, we will be fully operational.”

Orcutt said the office, at 1575 Indian River Boulevard, Suite C130, has room for several other brokers and “I anticipate we will grow, and I foresee us being an office of eight to 10 brokers in a permanent spot in a year and a half or so.”

Already, Orcutt has plans to bring the chief market strategist from Stifel Nicholaus to Vero Beach to address a seminar at the Emerson Center on April 24th.

So the Stanford chapter is nearly over for Orcutt, his clients have emerged virtually unscathed, and a new chapter with Stifel Nicholaus is about to begin.

But should a veteran of a quarter-century in the securities business have seen the Stanford problems coming?

“After the fact, there were a lot of people telling me I should have known better,” said Orcutt. “And I have to listen to that and go, ‘Maybe I should have known.’

“But the way it played out, what I did was based on some sound principles and thoughts,” he said. And, Orcutt added, “I actually am really happy it all happened fast.”

If he had been with Stanford more than one month after coming over from A.G. Edwards, “I would have gotten a lot more assets in. We had an enormous amount of assets coming into Stanford. The client loyalty was very, very strong.”

What has amazed Orcutt in addition to the client loyalty is “the incredible support that I’ve got from the community. It has brought tears to my eyes.

“I’ve had professionals in the community offer me office space to come in and work through this in their offices. I’ve had acquaintances I barely know come up and say they’ve been worried about me and they’re hoping I land on my feet. And this has come from all directions.

“It’s really the amount of support, and I figured there would be a lot of blame — but it’s been just the opposite. People have been very, very kind.”