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As recently as his column last week, Russ Smith was still keeping his brother's identity under veil. But as this article was going to press, he came clean, telling the Voice, "For the record, I am the majority owner of the New York Press. My brothers Randy and Jeff hold minority shares."
He repeated his claim that the Press became profitable in 1996, adding that it remained so in 1997. But in 1998, he said, "We invested heavily in printing in that we printed more editorial content, and that held down profits." Smith did not say whether the paper is in the black now, but two newspaper industry sources speculate that it's not, given the high rates he pays some writers and the paucity of display ads in the front section.
But in this buzz-driven world, does it matter whether the paper actually turns a profit, so long as it is perceived as a valuable commodity? One industry source says, "I think [Smith] could sell that paper tomorrow for triple or quadruple what he's put into it." Another claims Smith has attracted potential buyers and predicts the Press will be sold in two years. Smith confirms that he has been approached by "at least seven different investors." Jim Larkin, CEO of the alternative chain New Times, says, "If I don't get a chance to bid for it, I'll be angry."
So far, no one has accused Russ of becoming a conservative mouthpiece for his brother the limousine libertarian has plenty of his own opinions. But the brothers Smith appear to agree on one thing: their intense dislike for Mayor Rudolph Giuliani, whom Russ has called "nasty, vindictive, vicious" and "a grandstanding tyrant."
According to one financial insider, Randy Smith's dislike for Giuliani dates to the 1980s, when then prosecutor Giuliani intruded on a system established by Wall Street traders for organizing bankruptcies. Because bankruptcy is "all about gray areas in the law," the traders developed a "deep loathing" for Giuliani. And that loathing was echoed by Russ Smith in November, when he railed against Giuliani, declaring Michael Milken "a scapegoat for prosecutors" and "a hero who merely treaded in gray areas one or two times too often."
Randy Smith is no stranger to gray areas. In 1989, his brokerage was mixed up in a case involving Salim B. Lewis, who pleaded guilty to manipulating the price of some American Express stock which a colleague purchased, sold, and was later reimbursed for by Lewis, using R.D. Smith as a middleman. While no charges were brought against Smith or his company, the indictment said the company "created and maintained" false accounting records. One Wall Street type concludes that while Smith may have been "at the edge," he did nothing "unethical by the standards of bankrupcty law and investing."
Okay, so what the guy does is legal. But potential buyers of the New York Press should be aware of a pattern that has emerged over the years in Randy Smith's dealings with distressed companies. After studying the target company's finances, Smith makes an investment, collecting any information that might be pertinent when the distressed company becomes profitable. Then, in some cases, Smith tries to drum up additional investors who will pay more per share than he did, thereby raising the value of the company, as well as his own stake.
In one case that surfaced about the time of the 1991 SEC inquiry, Smith's investors held out so long in a debt restructuring that the distressed company, Community Newspapers, which published three dailies in Ohio, went bankrupt. A more recent example came to light in a lawsuit brought against Smith Management Company by U.S. Energy Systems (USE), based in West Palm Beach.
According to court documents, the president of USE met Randy Smith at a social function in 1995, leading to a mutual decision: Smith would invest in USE and USE would sell its stock through a public offering. But according to a source familiar with the case, the terms of the proposed IPO dictated that the public would have to buy USE stock at twice the price Smith had paid. For that reason, the securities regulation board did not approve the proposed IPO. The case, which involves a contract dispute, is pending in U.S. District Court in Manhattan. Lawyers for USE and SMC declined to comment.
None of this seems to impact Russ Smith, who says he is "very happy" putting out his newspaper. "We're not for sale," he insists. "Certainly I would consider it if someone came to me with an unimaginable offer. But I don't think that's likely."