Word: oxfordized
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Kott not only has ties to several major shareholders, but he has also helped launch the discount-brokerage business, restructured the company's debt and supervised advertising and marketing. Until a few months ago, he spent 50% to 60% of his time at JB Oxford's headquarters--in an office that was larger than Rubenstein's own digs. (Although Rubinstein points out, "I have the corner office...
Rubenstein's statements about Kott's office and the amount of time Kott spent there seem to contradict assertions that Oxford made in a civil case filed last year against Oxford, Kott and other defendants. After the plaintiffs tried to serve a summons on Kott at Oxford's offices, he and Oxford persuaded an appeals court judge to quash the summons. The main reasons: Kott had no office at JB Oxford, and he lived in Canada, not California. (Rubenstein says this isn't a contradiction because the office was provided to employees of Kott's consulting firm. Yet he acknowledges...
...Kott connection may be disturbing, but does it matter to JB Oxford's clients? After all, Oxford portrays itself as little more than a passive order taker for customers who make their own investment decisions. In fact, Oxford customers can have their own "personal" brokers, and some of the brokers steer clients to specific stocks, especially stocks in which Oxford is a market maker, since the firm makes much bigger profits that way. (A market maker can sell out of its own inventory, rather than as a middleman between buyer and seller.) Brokers have every incentive to recommend such stocks...
...room for abuse. Former employees and customers say the firm sometimes overcharged for stocks through price-manipulation schemes. At least three disgruntled clients complained to state-securities regulators about such abuses; one of them claimed to have lost his life savings. Rubenstein, for his part, insists that Oxford's sales and trading practices are in line with industry standards and that there have been few customer complaints...
There's no question that Oxford brokers have recommended at least one speculative stock to their customers: Legacy Software. It's an obscure company in the Los Angeles area that develops edutainment software, and when it went public last May, JB Oxford arranged the deal. Edutainment is a promising area, but Legacy was in very poor financial shape. The tiny software developer had a record of losses, and its accountants said there was "a substantial doubt as to the company's ability to continue as a going concern." In plain English, Legacy was on the verge of bankruptcy...