David A. Dadante was making questionable stock trades almost immediately after Ferris Baker Watts took him on as a client in early 2003.
By May of that year, Ferris management was concerned enough to launch an internal investigation. By early 2004, Ferris Chief Executive Officer Roger L. Calvert was so worried that he stopped letting Dadante borrow new money from the firm to buy shares.
Too bad they didn't shut him down and call the cops. If they had, documents filed yesterday suggest, the brokerage wouldn't have gotten into deep trouble with regulators, probably wouldn't be selling itself to a rival and wouldn't be ending a century-old Baltimore story.
Don't worry about the bosses who allowed the shenanigans, however. Thanks in part to golden-parachute clauses that they "negotiated" after it became clear the firm was for sale, they'll do just fine. Do worry about the investors Dadante cheated, the philanthropies that might lose donations when local ownership ends and lower-level Ferris employees who might lose their jobs.
In August, Dadante pleaded guilty to securities violations and has admitted placing illegal stock orders that artificially inflated shares of Innotrac, a Georgia order-processing and logistics company. His Ferris broker, Stephen J. Glantz, has pleaded guilty to aiding the fraud. Both are in federal prison.
Ferris is being sold to Royal Bank of Canada, which will combine the firm with its RBC Dain Rauscher money-management operation, for about $230 million. At 1.7 times book value, that's not a bad price in an unsettled landscape. But it's not a home run, either. In the 1990s, Baltimore's Alex. Brown sold to Bankers Trust for a fabulous 3 times book.
The Dadante fiasco cost Ferris millions in legal fees, costs of internal inquiries and uncollectible margin loans because management let Dadante continue trading after its own internal watchdogs had warned he was a problem.
The Securities and Exchange Commission and the Justice Department continue to probe the Dadante matter. Three former Ferris executives resigned or retired after the scope of the problem became clear, including general counsel Theodore Urban and Vice Chairman Louis J. Akers Jr.
Documents filed yesterday with the SEC note "continuing pressures" relating to civil and criminal investigations as big reasons for selling the company.
