Vulture Press

It looks to be a lucky year for New York Press publisher and editor in chief Russ Smith. In the last few months, Smith, 43, has enjoyed a run of publicity, including a profile in New York magazine. Last week, his mug appeared in a new print ad for the men's clothier Paul Stuart and in a color caricature in his own paper. The caricature drives home the buzz: it depicts a hayseed from Baltimore who has grown so fast, his lanky persona now towers over the Manhattan skyline, alongside the headquarters of Condé Nast and Time Life.

More power to the Press, which is now positioned as the feisty alternative in a season when tired publishers are looking to snap up their hip competition. But something's wrong with this picture: Smith is a first-rate hypocrite of the type he claims to detest. Throughout a season of interviews, he has been withholding the fact that the Press is dependent on financial assistance from his oldest brother, Randall Smith, a multimillionaire who honed his shrewd business instincts on Wall Street.

Until now, the Russ Smith mythology has the boy growing up in a working-class family on Long Island and then hunkering down to launch papers in Baltimore and New York. All that is apparently true. But as the bards tell it, this self-made man worked in his shirtsleeves, and success flowed from the sweat of his brow. Smith himself has written, "I'm fortunate enough, through dint of hard work, to have amassed a modest amount of wealth."

Smith's indie image has served him well; indeed, he uses it to flog the Voice, whose very existence he lives to destroy. As he recently fibbed to the Columbia Journalism Review, "The main difference between us and [Voice publisher] Leonard Stern is that this is a sideline venture for Stern. He's made a ton of money. This is a cocktail business for him. He's not a newspaperman. We're newspapermen."

Randy Smith, a newspaperman? In financial circles, he is better known as a "vulture capitalist"— that is, an investor who seeks to profit from troubled companies. The elder Smith first made news in 1984, when he left Bear Stearns to form his own brokerage house, R.D. Smith & Co. He had made millions in the junk-bond business by 1991, when allegations of insider trading attracted the attention of the Securities & Exchange Commission. "Bottom Fishing with R.D. Smith" read the headline in The New York Times business section.

The SEC brought no charges, and Randy Smith moved uptown to incorporate as BDS Securities ("bankruptcy, distressed and special situations," according to one clip). BDS was initially co-run by Smith and John W. Adams, Smith's former tax lawyer. Then, in 1992, they sold their stake to a group of shareholders who continued practicing the lucrative m.o.— that is, investing in troubled companies in hopes that a comeback would cause the securities to increase in value. In the best of times, employees took pride in a painting of a vulture in the lobby; it disappeared in 1997, when BDS quietly shut down.

But Randy Smith is still very much in business. His Manhattan-based Smith Management Company (SMC) continues the time-honored tradition of vulture capitalism, investing in health care, hotels, and emerging markets. But its highest profile is in the airline industry. In 1996, two years after Hawaiian Airlines emerged from bankruptcy, SMC invested $20 million in the struggling company, and SMC president John W. Adams was named chairman of the board.

Riffing on heroes in a recent column, Russ Smith wrote, "I happen to canonize my father and brothers." To illustrate, he published a cute photo of his four older brothers as children, and, last December, he described a 1975 European tour he took as a college student with "my oldest brother, his wife and two children." In keeping with his brother's desire for invisibility, Smith did not cite Randy by name. But he recounted that his role was to be nanny for the kids, while their mom and dad dined out at fancy restaurants.

In 1978, the same year Russ Smith graduated from Johns Hopkins University, he and his roommate Alan Hirsch pooled $5000 each to launch the Baltimore City Paper. Shortly after, they launched another City Paper in Washington, D.C. In 1987, Smith sold both papers, pocketing what has been reported as more than $4 million. According to a 1990 article in Newsday, "Smith took his share and started the New York Press with an unidentified, outside investor."

That would be Randy Smith. And if Randy was secretive eight years ago (the Times reported that the investor, then 48, rarely gave interviews or allowed himself to be photographed), his passion for privacy is now an industry unto itself. He and his wife live on a huge estate in Southampton, New York, according to people who have been there. "He is very soft-spoken, very self- effacing," says one acquaintance, "with not much expression in his face ever." And there's good reason for his reticence, says another: "Randy is so rich he's the kind of guy who divests himself every couple of years," so he doesn't make the lists of the world's richest people.

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."

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