20090624-bizcover-0101.jpgBack in P.T. Barnum’s day, if someone said they were going to tighten their belt a notch, it was usually because they hadn’t eaten in a while. When someone uses the idiom today, it more likely means that times are tough and money’s scarce.

 Small businesses and individuals are collectively tightening belts at an increasing pace, and many Lafayette business owners tell Acadiana Business they are now beginning to feel the effects of the recession. 

Even though many local concerns aren’t tied directly to oil and gas, that industry’s fortune greatly impacts everyday life in the Acadiana area, and the fear that things could get worse is enough to keep some residents home. 

“I think people are scared right now,” says Aristos Anastasiades, owner of Poseidon’s, a Greek restaurant at the intersection of Pinhook and Kaliste Saloom roads. “Between the stock market and people losing their jobs and we’re so dependent on the oil field. Everybody’s affected by it, one way or another, and I think most of the people [who eat at Poseidon’s] are middle class, and those are mostly the people who get laid off. They’ll watch their money more, and it’s just easier and cheaper to cook at the house.”

Lunch at Poseidon’s used to be a challenge. With two other restaurants and several local businesses in the small shopping center, an open parking space was a luxury because all three eating spots were packed. During the second week of June, however, there are only three tables with customers. “Our to-go business has actually increased,” says Anastasiades. “I think the slow-down started back in November, but the last two months haven’t been very good and the last month [May] was just bad. We’re going to have to continue to come up with specials. You know, you can’t lower the prices and if you cut portions, people will quit coming. The only thing you can do is the specials.

“We all used to be packed for lunch. Not lately.”

Anastasiades refuses to cut his portions, claiming if he does that, customers will quit coming. His prices might go up a bit, but he figures his clientele will understand that a lot more than smaller servings. But any price increase at Poseidon’s, which celebrates its 15th year in August, probably won’t reflect what it’s costing him these days from his suppliers.

“It costs me less to [visit Cyprus] than it does to be here,” he said. “Of course, I like to buy local, [but] the price of food never came down after [Hurricane] Katrina. Like the Halloumi cheese? I used to get a case for $65, and I’m paying $192 per case now. 

“That’s a lot of money. I mean, you can increase your prices but you can’t triple them. When fuel prices went up, everything else went up too, but when they came back down, everything else stayed up. It’s funny how it works,” he chuckles.

There’s not much laughter down at the Acadiana Safety Association. Driver education — often an oxymoron on Louisiana’s roads — is down and so is oilfield certification, the two main components of ASA’s success.  

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Aristos Anastasiades
Photo by Robin May
 

“We teach oilfield safety and driving programs,” says Wayne Lejeune, the association’s executive director for more than four years. But like many necessary businesses today, there are economic problems plaguing the ASA. 

“Our driver’s education program is a 38-hour course for 15 and 16 year olds and prepares them for their six-month permit, which they receive before they get their drivers license,” he explains. “The cost used to be $350, but we were forced to raise the fee to $400 in January. Well, when gas prices went up to around $4 per gallon last summer, a lot of parents decided to forego the training and make their children wait until they turned 17. At that age, the state permits them to take a six-hour classroom session instead of the 38-hour course, and the cost is just $35. So parents are saving money by making the kids wait for their licenses for an extra year ore two, but our business is down about 30 percent since January.”

Meanwhile, oilfield safety certification, the ASA’s other staple, has taken an even bigger hit. “Our oilfield business is off more than 50 percent. The training involves water safety, and it’s mandatory for oilfield workers who will be going offshore.”

But according to Lejeune, oil companies are laying off employees to cut costs, which means less re-certification and very little new certification. “So it’s not just Acadiana Safety Association that’s down, it’s the entire industry,” he says. “Some of our competitors have shut down, and their employees are calling us for instructor positions. I’ve got a pretty big folder full of résumés.”

It’s cost-cutting at its most nefarious: safety training, which can and has saved lives, apparently isn’t an expense that generates profit.  

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Dr. Mike Malone
Photo by RobinMay
 

Arranging for people to get to where the action is, however, does.

“Business is, I almost hate to say it, good,” says Robbie Bush, owner of Associated Travel. “Our business is primarily corporate, like oil or health care, those kind of things. A large part of it is educational travel, a lot of school trips to Washington, D.C., or Quebec and the smallest part of our business is individual, tours and cruises. From our standpoint, the recession just hasn’t impacted us to the extent it’s impacted others.” 

“There was talk that the recession would force corporate business to cut budget and travel less,” says Bush. “But the reality is that to do business effectively, you pretty much have to go where your business is developing and operating. If it’s a rig in Africa, you can’t work that online. What we’ve suggested to businesses is ... instead of making that trip tomorrow or next week, can you put it off three weeks and save 40 percent? And our fees are still the same.”

Consumers have often thought they could do as good, if not better job, than a professional. Sometimes they can, and places like Home Depot are thankful for it. But mostly they can’t ­— and usually know they can’t — which is why some businesses will always survive even in a recession.  

“People are still getting their teeth cleaned and taking care of themselves, and if they want something badly enough, they seem to find a way,” says Dr. Mike Malone, a local dentist.

According to Malone, the general dentistry side is doing so well that he’s planning to add another associate. “Right now we’re having trouble finding the space to fit everyone in, and an additional doctor will certainly help,” he says. “The cosmetic and reconstructive work has changed very little during the past 12 months.”

Looking good is still important to most people, but there are some signs that, too, may be slowing. Terry Allen, who’s been styling hair at his Oaklawn/University location for 18 years, says his vocation is pretty much like everything else these days: longer hours for less money.

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Terry Allen
Photo by Robin May
 

“Our first major slowdown was right after 9/11,” says Allen. “I have a friend who owns a convenience store, who said that when people get out of their routine, their normalcy, they tend to do a different thing. Their routine was interrupted then just like, for different reasons, it’s being interrupted now.”

Allen, who leases space to six other stylists, says about half of his customers are men; women comprise 70 percent of the other stylists’ clientele. One customer recently confessed that she couldn’t have her hair colored because she couldn’t afford it. 

“At the shop, we started to feel it over the last two or three months, and last week was really lousy,” admits Allen. “We seem to feel it on the retail side more than the styling. And maybe they’re stretching their appointments a little, waiting a couple of weeks longer than they ordinarily would.” Since the salon’s business is 95 percent repeat customers, a slowdown is almost a certainty. 

But not all businesses have been weakened by the recession, some actually finding a silver lining amid the economic gloom. “A lot of people seem to be buying used mobile homes and remodeling them, which obviously helps out business,” says Linda Goodyear, a former Iberia Parish narcotics agent who is now office manager for Budget Tool and Mobile Home Supply in New Iberia. “Some of them maybe used to have large houses with large mortgages, and now they’ve downsized to a mobile home, either to live in or rent out. When housing construction goes down, mobile home purchases and remodeling goes up, and that’s good for us.”

It’s safe to say, though, that 2009 may not be a banner year for Anastasiades, Bush, Lejeune, Malone, Allen or Goodyear or for that matter, most people in south Louisiana. The recession, which seemed to bypass the region in favor of less fortunate parts of the country, changed its course like a slow-moving hurricane. How much strength it builds, and how long it stalls over the Lafayette area, is anybody’s guess.

 



Too Good To Be True

 
Lafayette financial advisers weigh in on the local fallout from the Stanford scandal.

By Leslie Turk and Don Allen

 

There’s a sucker born every minute.

The line was spoken 140 years ago and attributed to P.T. Barnum, creator of the “Greatest Show on Earth,” which eventually became Ringling Bros. and Barnum & Bailey Circus. But the phrase was actually coined by David Hannum, the head of a Syracuse syndicate that owned the Cardiff Giant, a 10-foot-tall petrified man. Barnum had his own fake giant until a judge declared both hoaxes in 1870.

Hannum — surprise — was a banker. Now more than a century later, financial showmen with names like Madoff and Stanford are becoming footnotes to the phrase. While far more sophisticated than the petrified giants of the 19th century, today’s alleged Ponzi schemes still contain the single, most important element of any successful hoax: they’re attractive enough to make people think they’re getting something for nothing.  

“I’m not sure you can prevent this,” says Fred Werner, senior partner with Summit Financial. “There’s probably enough protection in place, but the [SEC] regulators have continued to look the other way. Now they’re stomping their feet and saying, ‘We have to stop this,’ and they’re the ones that were doing nothing [all along].”

Nary a week goes by when someone isn’t accused of bilking millions and even billions from hapless investors. They did it by promising to pay off early investors with investments from later investors, just as Charles Ponzi did almost 100 years ago in his postage scam. Ponzi talked investors out of millions of dollars in 1920, but the billions worth of fraud allegations against Bernard Madoff and R. Allen Stanford almost 90 years later dwarf Ponzi’s original scam.

“It’s not like the investors or advisers there were ignorant; a lot of very intelligent people were taken in,” says Don Paul, a local investment counselor for Edward Jones. “If someone like Madoff is touting a 20 percent return when everybody else is at 8 percent, and Stanford is claiming 8 percent for CDs when the rest of the world is offering 2 percent, then maybe you should remember that if it sounds too good to be true, it probably is.”

That could very well be the mantra of every investment counselor still advising, especially those with the words Madoff or Stanford absent from their résumé.  

Werner still can’t understand how the investors — and maybe even their advisers — believed the returns. 

Werner never did. “We were suspicious of Stanford fairly early, and one of my former partners actually called [a newspaper] and tried to get them to investigate. When they finally did the story, they called him back and asked if he wanted to be quoted and he said, ‘oh, hell, no.’ At that point, he didn’t want his name associated with the story at all, because reputation is everything in our business.”

Dave Romagosa of Cornerstone Financial Group isn’t giving advisers a pass, believing they failed to do their due diligence — in part, he believes, because they were so focused on marketing their firm’s products. “Anyone who has the education that is required to be in this business should have seen a bunch of red flags and should have been concerned,” he says. “When dealing with customer accounts, suitability and disclosure are a big issues. As my firm’s local compliance officer, I am required to review all customer accounts to make certain that the investments recommended by the representatives in our firm are appropriate.” Romagosa maintains, however, that it’s the responsibility of the registered representatives (i.e., the Stanford advisers) to know what’s most appropriate for their clients. “The investments sold [or recommended] must be consistent with the client’s risk tolerance, age, assets, liabilities and overall financial situation,” continues Romagosa, who has advised clients in the Lafayette market for more than four decades. “The client must be advised by his or her representative of all risks involved.”

A leveraged municipal bond fund, for example, is not appropriate for most investors. 

And neither are offshore certificates of deposit, Romagosa notes. “These investment offerings should be limited to wealthy, sophisticated investors with large, well diversified portfolios. They should only represent a small portion of invested assets, even for very wealthy investors. These investments should only be offered to people who can easily withstand the loss,” he says.

Based on their experience with area Stanford brokers, some local financial advisers strongly believe that the Stanford representatives did not follow these guidelines, and that the Stanford compliance officer failed to complete an appropriate review of customer accounts. 

A local financial adviser who asked not to be identified says he has a client who also invested a portion of his portfolio with Stanford. When the local Stanford broker wanted the client to invest a large sum in a leveraged portfolio of municipal bonds, the client asked this unidentified adviser to review the proposal. After a thorough review, the adviser strongly suggested the client not invest in the fund, saying it was too risky for his profile, because the potential for loss far outweighed the potential gain — and there was even a chance he could lose the principal. “The investment manager being recommended was relatively small and untested,” says the anonymous adviser, who also saw a conflict in that the chief investment officer was the same person designated as the chief compliance officer for the investment management firm. “This is like asking the fox to guard the hen house,” he adds. “The leveraged municipal bond portfolio was recommended by [local Stanford reps] as a source of high, tax-free income. It was described as relatively risk free.” This unidentified adviser did not believe the risks were fully and properly disclosed, which he expressed to both the client and the Stanford representative.

“The Stanford adviser told me that I didn’t understand the European model of investing,” the financial adviser recalls, “that I was caught up in the way we do things in the U.S., that their model was different and more sophisticated. Fortunately, we strongly disagreed. I think [the Stanford adviser] was so busy selling that there was a lapse in due diligence.”

The client took the advice and steered clear of the leveraged municipal bond fund; within a year the portfolio had experienced substantial losses. Today that client is a very happy man. 

All local advisers interviewed for this story say the black eye of the scandals will take time to heal, especially as details of what really happened continue to unfold. But, they also say, there has been an upside for those in their field with a solid track record for doing their homework for clients.

“Initially I think people just lumped all of us together [when the scandals broke],” says Paul, who has been with Edward Jones for almost a decade. “But you explain that Edward Jones and most other firms are made up of honest people and to not let the stuff affect you, and there are crooks in all walks of life out there. I think the whole thing’s probably helped [Edward Jones], because it’s driven people to seek more advice from us.”

Werner believes that hundreds of investors in Baton Rouge and Lafayette have been adversely affected, but not everyone has come forward. “I think they started in Baton Rouge first, got plant workers and retirees to invest, then moved on to Lafayette and perhaps a wealthier clientele. You know, you have $10 million and you lose a million, that’s not good. But you lose a life savings of a few hundred thousand, that’s devastating.”

First there was Madoff, then Stanford, and now allegations involving Lafayette-based Bowman Investment Group and its former broker-dealer Brookstone Securities. Many people are wondering what the next scandal du jour might be. In the meantime, federal and state authorities are crawling all over the individuals and companies involved in these alleged schemes, which, financially crushing as they were to some people, have served to further erode the confidence of the Acadiana consumer.

Perhaps if authorities can get to the bottom of who’s responsible for the billions that have been lost that confidence will return. Attorney General Buddy Caldwell hopes to do just that in Louisiana. On June 16, Caldwell announced that his office has launched a formal criminal investigation into the activities of Stanford Group Company, which is also the subject of federal civil, criminal, and Securities and Exchange Commission investigations in the alleged $8 billion Ponzi scheme involving so-called CDs in Allen Stanford’s Antigua-based bank.

The investigations are centered on victims who were defrauded, with losses in Louisiana believed to exceed $1 billion. Houston-based Stanford Financial opened Stanford Group Company in Baton Rouge in the 1990s along with another Stanford entity, Stanford Trust Company, and expanded to Lafayette in 2005. It celebrated the opening of its new Stanford Group Company office in River Ranch in early 2008.

The AG says he has opened a criminal investigation to determine what violations of state law may have occurred and to fully protect the rights and interests of Louisiana victims.

Two days later, on June 18, Sir Allen Stanford himself surrendered to the FBI, hours after a federal grand jury returned a sealed, 21-count indictment against him. The Texas billionaire is charged with fraud, conspiracy and obstruction. Six others, including a former Antiguan bank regulator, were indicted as well.

Stanford faces a maximum sentence of 250 years.

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