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Show F2 The Salt Lake Tribune BUSINESS Sunday, January28, 1996 S. Jay Goldinger’s personal-advice column, which appeared every other week in The Salt Lake Tribune's Sunday business section, was canceled after revelations of his financial problems came to light Media Maven to Flat Busted ERLY HILLS Calif. — $ Jay ip as the son of a textileexecutive { seaside community of Santa G r developed aflair for atattention at an early age. Heloved to built his reputation as a hedroppedtensof thousandsof dollars a year juaint stories of howhepored over of his nde into the offices clie ick his hnolog Califorr t maker wer Goldinger to hand over r m says Charles McBray PairG chieffinancial officer. Goldinger stunned the bottor 1 fe eminar he he Brokerage collapsed amid accusations hat in late 1970s, Goldinger was becoming y prosperous se lling fixed-income two bloeks from the boushionable eateries of Rodeo s specialty, ostensibly. was to devise iting investment techniques for his afient clientele His true calling. it seemed, omething more: Goldinger, who thought othi f starting his 14-hour workdays beJawn and encouragingclients to cal him It was then that he finally a nounced th it a blizzard of high-risk trades had effectively wiped out his wealth. In the chaotic wake of the announcement, his Capital nsight regule relished being in the spotlight ie offices of Cantor Fitzgerald month later. su with a friend. While shyin so- speeches oons to talk shop, began marvith a vengeance ere the weekly “infomercials tation. He also trolled for new aX seminars, making presen- cluded a racing stable, trips on the Concorde and baseball tickets donated for thou: f disadvanta children nationwide. G was besieged by personal a 0 problems. Just for starters, he was embr in a hellish divorce and child-custods {ment conferences andsetting free phone line { from the start, he focused on culti- which his estre sed wife had < ' him of everythi from “compulsive’ gam bling to sexual impotence His business, beneath his glib public facade was if anything faring even worse Interviews with former clients and associates, alon a review offinancial documents he pri ournalists and capitalizing on chances et mentioned in major newspapers and magazines When East Coast reporters facing a deadline called frantically looking for bond-market commentary, only to find that nearlyall of his competitors had gone home, Goldinger once explained. “I'm the only guy available.” with ided his clients, suggest that his disastrously bet oninterest rates was hardly his on lem. Several clients say that Goldinger made unauthorized trades gave them false informa tion about how he invested their funds and Yet even early in his career, Goldinger was accused of transgressions that are strikingly similar to those being leveled now. In a 1984 lavish lifestyle, Goldinger was underfinancial pressure The family-ownedstable had a loss 70,000 during 1991 and 1992 according to a filing by Mrs. Goldinge accountant based on Goldinger’s financial records. The filing also says he withdrewat least $175,000 from cash machinesat racetracks during the sameperiod. Cash and cashierchecks for unspecified purposes averaged $ ly. After Goldinger andhis wife separated in tures Trading Commission have sort Ex separate investigations into the sudden lapse of Capital Insight why some clieuts continued doing business with him. Specialty retailer Pier 1 Imports e sole owner in 1992 iger continued to woo clients by stressin, g his conservatism. He described certain types of bond trading as ‘a one-wayticket Inc, and a former sister company lost $30 mil lion thanks to Goldinger over a nearly six-year to oblivion’ and derided options on Treasury tures — the ry vehicles that already had stretch »tten himinto trouble and would do so again The rise and fall of Jay Goldinger is in man no game” ways a classic Wall Street tale of arrogance andself-deception. At the same time, there is amore poignant side to Goldinger’s story. ainst The t-rate product of a broken home who could be shy and¢ rd, he tried exceedingly make it — and even harder to convince moves Val evan ashewaned against risky investments, he was quietly pursuing a highflying hard 1 world that he had. For a long time, he likely to leadto disaster a 1991 bookrailing in rt the dangers of trying to anticipate in- course of his own. In divorce papers, Janice the Goldinger, eed a New York stockbroker whom he irried after a whirlwind courtship in 1987 ed on both counts like they are being treated badly and they are,” said Dan Burton vice president for government re rorists, as well as organizedcrimi nals, drug traffickers and other lations at Novell says James P. The companies will be hurt, too Cavanaugh, NSA’s deputy director of public policy Henotesthat agencies have al- according to a BSAstudyon the subject. Theystandtolose $6 bil lion to $9 billion in annual revenues, they say lowed the export controls to be relaxed several times in recent years to accommodate their need to remain competitive. He also points out that U.S. software com- panies continue to dominate their markets even withthe controls Weshare the concern that U.S. persons have available to them the security products they needto protect their privacy and sensitive data.” Cavanaugh adds That's why the NSA allows U.S citizens to obtain licenses to export the encryption they need to securetheir overseas communica tions Last fall, the Clinton adminis- What this [exportrestriction] does is put us on slippery slope,” says Novell's Burton. This conclusion generally has been backed up by a U.S. Com merce Department studyreleased Jan. 11 The survey. conducted by the NSA and the Bureau of Export Administration. noted the poten- tial for growth in sales of encrypt ed software. It also acknowledges the export controls, combined with the availability of stronger security in foreign software, “can have a negative effect on U.S formationat the government's be hest The security agencies support ed the idea, but opponents moved reveals that by the middle of 1995, the hectic pace of Capital Insight’s trading picked up even more, On Aug. 11 for instance Goldinger traded roughly 5,000 options contracts and 1,000 futures contracts in PairGain’s account. That was several timeshigher than the average trading volume in that account overthe previous two years. As aresult ofall this trading, total commissions for certain accounts in some months amountedto almost 10 percent of their value Goldingerhas told clients that since the late 1980s, they may havepaid close to $100 million in total commissions, divided between In the middleof 1995, Goldinger madewhat counts. By using risky futures and options markets. whichallow the use of more than 90 1es formed Capital Insight, of which he limits, they say The foreign customers feél tional securityofficials to protect the nation’s citizens against ter percent or better a year A review ofseveral clients’ trading records from November 1995 back to the mid-1980s Those difficulties notwithstanding, when tor Fitzgerald closed its West Coast retail ations in 18 Goldinger and threecol- c Meantime, fallout from the financial deba cle is spreading and raising questions about encumbered by the encryption tion technology threatens the Goldinger’s reports to clients continued to indicate that they were seeing returns of 15 Goldinger and Cantor denied the charges but settled the dispute by paying $330,000 on the Internet, for example, they will turn to software makers not “The proliferation of encryp: tion is bending is the Justice De. interest rates would climb. In thousands of trades. across numerous clients’ accounts, he madethe samebet evenas rates continued to lat iched card numbers can be used safely tration proposed a compromise and child-support payments than $860,000 of its money through “fraudu- change Commission and the Commodities I puter companies fromselling it to customers outside the United States. who could unscramble coded in- alimony doled out pithy quotes at any hour of the investing practices. nations cannot be sure their VISA having computer companies give code keys to “escrow agents. 1993, amountedto perhapshis biggest gamble, that “excessive” fo of world wide sales. If buyers fromother dollars annually. County Plastering Inc. charged Goldinger and Cantor Fitzgerald with losing more and their market, with amountedto an additional quarterofa miilion thenfailed to disclose commissions Goldinger. who once courted the pres s and lent’ @ Continued from F-1 competitiveness. Capital Insight and a Chicago commodities trading andclearing firm da: the encryptionlimits. The alliance notes that U.S: software companies dominate violent criminals.” suit in Los Angeles federal court. client Or- or night, declined to be interviewed As investors and associates try to through the mess. the Securities and Sales and Spies became embroiled in a nasty custody fight over an infant daughter. According to her declarations in the divorce ed and then feeling doubt about whether Goldinger was, in fact, the sperm donor. Goldingerhas blasted manyof her allegations and actions as “ludicrous” and “pathological.” Thecourt recordsalso suggest that despite a the University of curbs through their trade group; the Business Software Alliance. They arguethat thenation’s eco: nomic vitality is at risk because of Conflict About ability of law enforcement and na- aration. At onepoint in the court record she talks about havingbeen artificially inseminat- Goldinger became a stocl nd soon started conducting invest- million ther tors. Behind the shining face of recon- After studying econom- ics at g gains — unt ents and a flurry of investigations by later California at Los Angeles, rte his precipitous fall and about how he had frittered ay an estimated $100 of his clients’ money — all while telling father complained about the export cording to several traders and securities lawyers. As his financial problems mounted, Goldinger’s personal life was spinning out of control. In 1993, he and his wife separated and case, Goldinger was ‘a social recluse” who disliked family events, usedto bail out of parties at his own house after an hour andpaid almost no attention to his child before the sep- ciled. he remained on poor terms with his mother in the hou Washington political and budget be undermined his investment stra soured his bet that interest s would t Hewas lucky I wasn't 10 to 15 yea our ger.” says McBrayer, 4 At that age. I wa: more likely to slug someone Intruth, the onetime finane al whiz kid getting pumme ed on all fronts gut the rest of the world wouldn't kn they were maki net worth daily. his lio and he he ading $16 million thre oe lative bond-futures market. For the next two the boyish Goldinger rambled or gle account more than 10 times in a day, an unusually large numberof transactions, ac- His childhood wasfar fromidyllic, though he was was 15 his parents divorced, and he refused to speak with his father for the next five years. according to a declaration by his estranged wife, Janice, in their divorce case. Though he and € that he had been pr y saying that “the on after turning 11, madeakills ofa funeral firm. Byage 13. ) a bulletin boardin his bedroom st one at the track. He seemed to be taking even bigger gamblesin his business. Sometime: would buyand sell the sameoptionsfora sin- 4] news reports in his bunk at summer money mar Coding: @ Ex-Columnist ro Goldinger’s Journey: From fall. And he was gambling with morethan just the money that he was showing in clients’ ac- percent borrowed money, he was ableto lever- agehis bets. In the end, all that leverage had oneeffect: to inflate his losses. Goldinger had violated his own cardinal rule of caution: If rates are moving against vou, “do an -face and go withtheflow Goldinger’s facade finally collapsedtheeve- ning he arrived empty-handed at PairGain’s swiftly to quash the proposal. Un der the banner of the Ad Hoe Co: alition for Computer Privacy they have flooded the White House with letters and studies telling why that compromise won't work In letters, speeches andtestimony, critics have warned that limiting encryptionlimits person Another sign the administr partment’s decision ten days ago to drop its case against Phil Zimmerman. a Boulder, Colo., er tologist. A few years ago hedev oped a program called Pretty Good Privacy anddistributed it free via the Internet. Federal prosecutors investigated Zimmer man and his program for three years No oneis sure how things will work out. EPIC’s Banisar expects the federal governmenttogiveuj eventually, Novell's Burton pre dicts market for eventuall, al privacy in the computer age andwill threaten the Clinton administration’s hopes for developing the Global Information Infrastructure, the worldwide will settle the dispute. He agree Information Superhighway We are not going to say that an illegitimate concern,’ Burton Individuals require privacy protection in order to build the confidence necessary to use the GII for personal and financial transactions,” said the umbrella trade group, the Information Industry Trade Council, in a Nov. 8 letter to Vice President Al Gore Government ceilings on key lengths will not provide an adequatelevel of security for many applications, particularly as advances in computing rendercur- rent cryptography systems less secure Computer companies also have the companies need to besensi tive to the security concerns raised by the intelligence ager cies. says. “The problemis, we have to solve it in such a waythat ij doesn’t harm the competitiven of the U.S. softwareindustry Others worrythat if the in’ genceagenciesdo not retain so! of their protections against wide spreadencryption, they will push for even tighter controls At this point no oneis sure And. despite their efforts to work together on a plan theycan agree upon, the agencies and the com panies seem unlikely to budge much further offices just before Thanksgiving. Time had run out. Goldinger began person- ally calling clients anddrafting letters alerting them about Capital Insight’s demise. ‘I simply can't do it anymore. either financially or emotionally.” he wrote just before the Christmas holidays. “Having to report theselossesto you is by far the most painful thing I haveever had to do. Morrison KnudsenHires Restr ucturing Firm BA RE BOISE — After several months Jenrette’s ireas of expertise is n¢ k tion that Mer Yankrupt of searching. financially troubled Tso K nuc hired one of the nation’s mos gressive corporate restruct firms to plot its future lion in debt, $140 million of which must be paid off Morrison Knudsen Corp \ g Donaldson. ha Lufkin and «Never need a pay phoneagain! Nokia ¢ Audiovox Airtime by US West Cellular Sept. Aren't You Tired of Your $@% Computer? vsabp Grade YourSystem For a Down GradePrice. d, CPU & Controller ‘d, CPU & ‘oller.. 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