Pointing The Finger Creditors look for answers in the bankruptcy of upscale investment firm. by JOHN BRANSTON he trader did it. That’s what brought down upscale Hemisphere Trading Company and cost several of its wealthy clients millions of dollars, according to testimony in a U.S. Bankruptcy Court hearing last week. The finger-pointing part of the two-hour session focused on Brad Arberg, a young stock trader from Atlanta who picked the investments for Hemisphere from the firm’s inception in 1992 until he was fired in 1998. Arberg was not present at the creditors’ hearing to answer questions. Neither were Hemisphere president Gloria Felsenthal or her husband Eddie Felsenthal, who creditors said was the person who met with them and convinced them to invest with the firm. Instead, the Felsenthals sent Steven Stanton, an attorney and C.P.A., to answer questions from creditors and attorneys. But Stanton wasn’t hired until last December, so his sometimes sketchy information was secondhand at best, as his questioners pointed out. The hearing established this much: Hemisphere was founded as a registered investment adviser in 1992 for individuals with $250,000 annual income or at least $1 million in net worth. Customers included several Memphis doctors, friends and family of the Felsenthals, former Tennessee Attorney General Charles Burson, and U.S. Ambassador to China James Sasser. The company made money for at least a few years but foundered last summer. Arberg made trades in so-called microcap companies that were “unusual,” “questionable,” and “unauthorized,” according to Stanton. Some trading was done on margin, a way of leveraging an investment that can magnify gains or losses. Some investors didn’t know they had margin accounts, or didn’t know the stocks that were in their accounts, or could not reconcile their monthly statements with the true value of investments that Hemisphere made because they were given false information. “Brad was the only one making day-to-day decisions,” said Stanton. One company Hemisphere invested in was called PHP Healthcare, which is now in bankruptcy. At one time it traded on the New York Stock Exchange for $37, but then it was delisted and the price fell last year to 5 cents in the over-the-counter market. Gloria and Eddie Felsenthal, a wealthy insurance agent, were introduced to Arberg by one of their sons, said Al Harvey, an attorney representing Hemisphere. Arberg was the company’s first and only employee for the first few years of the firm’s existence. Harvey said investors have also alleged that Arberg had an improper relationship with a female lawyer for an Atlanta firm that was advising Hemisphere on various matters. “Allegations have been made that the lawyer was advising Arberg at the same time she was advising Hemisphere,” Harvey said. Arberg denied the allegations when he was confronted and fired last August. He has not commented on the bankruptcy so far, and attempts to reach him through relatives in Georgia have been unsuccessful. The Felsenthals also have been unavailable for comment, although they came in for their share of skepticism from creditors. Gloria Felsenthal is listed as the president and sole stockholder of Hemisphere, and Harvey and Stanton said she put $394,000 into the firm last year to pay expenses and meet margin calls. But Charles Adwell, trustee for the Pediatric Anesthesiologists Pension Fund, said it was Eddie Felsenthal, not Gloria, who met with the group. And Jegdish Babu, another investor, said it was a “misrepresentation” for Stanton to say that Gloria and not Eddie was the person most involved with Hemisphere. Babu said he personally met with Eddie and didn’t even know Gloria had any role in the company at all until he saw her name in a newspaper story. Although Bankruptcy Court records list nearly 200 creditors, fewer than 10 came in person to last week’s hearing. Others, including Burson, do not plan to pursue claims either because they were satisfied with their accounts or don’t want publicity. The court filings estimate the losses at less than $10 million, but some creditors believe it could be as much as $30 million. “We will know more once people file their claims,” said Harvey. Hemisphere is taking a liquidation bankruptcy, meaning it does not plan to reorganize and reopen. Harvey said Hemisphere’s attorneys have put its insurance companies on notice for possible claims against them. Stanton said Hemisphere was also doing “forensic accounting” of Arberg’s trading and the trading of other firms in certain microcap companies. He didn’t elaborate but was apparently suggesting possible price manipulation, which would be a Securites and Exchange Commission violation. At any rate, the investigation was aborted because Hemisphere ran out of money.