Physician practice-management companies (PPMs) first stormed the initial-public-offering market in the mid-1990s, promising to consolidate highly- fragmented medical specialties and to reduce operational costs.

A juicy story, to be sure, given that public companies still only control about ten percent of physicians' practices. High expectations, however, were soon followed by monumental disappointments, leaving a foul taste that still sours the industry. As a result, few sectors have faced more resistance from the capital markets, or been as volatile in the aftermarket than PPMs.

"A lot of factors have contributed to this," said Minneapolis-based Piper Jaffray analyst Brooks O'Neil. "These include very early-stage consolidation among young, fast-growing companies, limited information technology and high investor expectations."

Coastal Physicians (NYSE:DR) and Physician Resources Group (NYSE:PRG) are perhaps classic examples of companies that failed to fulfill investor expectations.

Coastal Physicians priced 3 million shares at $11 1/2 in June 1991 through a syndicate led by Smith Barney Harris Upham (now part of Wall Street giant Solomon Smith Barney), climbing to $40 1/4 in 1994. Heavy debt whittled away most of the gains in the second half of 1995. The stock recently closed trading at three-quarters of a dollar.

Physician Resources Group, a Smith Barney-led June 1995 IPO priced at $13 a share, suffered the wrath of investors for a different reason no intrinsic value gained as the company expanded. In 1996, the Dallas-based operator of ophthalmic and optometric practices acquired 140 practices for about $500 million, financed in large part through the company's strong stock price.

"They grew too fast and were never able to really add value to the practices," said one industry analyst, who requested anonymity.

During the acquisition spree in June 1996, the company's stock peaked at $33 3/8 before investors had second thoughts after the company's poor 1996 second-quarter operating results were posted. The stock recently closed at $4.

Despite the appetite for additional capital among PPMs, such horror stories have made it difficult, if not impossible, for underwriters to drum up support for proposed offerings. In 1997, three companies were unable to attract sufficient investor interest, despite the fact that 13 PPMs were previously able to price IPOs, raising $369.4 million in capital.

In the fourth quarter of 1997, Dentalco postponed its Morgan Stanley Dean Witter, Discover & Co.-led offering, citing market conditions. In December, First New England Dental withdrew its proposed $27.6 million offering, through New York-based Furman Selz.

Pentegra Dental (AMEX:PEN), which originally filed its intent to go public in October with Lehman Brothers in New York serving as lead for the deal, is making another run at the public markets with Minneapolis-based Dain Rauscher, the deal's former co-manager, serving as lead.

"Unfortunately, it's set at a pretty low valuation," said Wade Massad, director of equity syndication at Dain Rauscher, referring to the deal's proposed $5 to $7 asking price.

Still, all is not pessimistic. Massad for one, sees a silver lining. "This [latest deal] is slowly but surely coming along," he said. "If you look at how these [PPMs] have performed over time, they have done pretty well."(Pentegra Dental was slated to price the week of March 23, according to Massad.)

Through the close of trading on March 27, the average return for last year's 13 IPOs within the sector stood at 33.23 percent above offering.

Despite some continued market skepticism, other companies are helping to fill in the supply side of the equation. But the question remains: Will investors return to this once problematic industry?

Despite the earlier setbacks, O'Neil and others believe the sector is poised to deliver explosive growth.

"You need mass to achieve economies of scale," said San Francisco-based Volpe Brown Whelan & Co. analyst John Ederer, alluding to one of his favorite picks, American Oncology (Nasdaq:AORI), which had 35 practices in 15 states under management at year's end.

Aiming to avoid the pitfalls taken by less successful offerings, the Houston-based company is taking care to improve operating margins within each acquired business. That has led to the recruitment of more physicians, the addition of subspecialties within a practice's core specialty, (such as cancer treatment), payer agreements, alliances with pharmaceutical entities as well as clinical research.

"When you have 300 physicians who see 80,000 new cancer patients each year, that's valuable stuff to pharmaceutical companies," Ederer noted.

Ederer rates American Oncology a "strong buy," forecasting that 1998 earnings will jump to 65 cents a share, up from a 1997 earnings per share of 48 cents, on revenues of $431 million (before climbing to 85 cents on revenues of $557 million in 1999.) American Oncology closed late March at $15 9/16, 25.9 percent below its June 1995 opening through Baltimore's BT Alex. Brown.

In a related sector, Monarch Dental (Nasdaq:MDDS), currently the largest publicly-traded DPM (dental practice-management company) with 99 dental practices under management, is viewed by some analysts as a key consolidator within the industry.

"This is a highly-fragmented industry," noted St. Petersburg-based Raymond James & Associates analyst Michael Baker, who initiated coverage of the company with a "buy (1)" rating. "In spite of the growing number of participants, DPMs' penetration of the market has not even begun to scratch the surface," Baker said in a report.

"Revenues of the DPMs total approximately $335 million, which represents only one percent of the $35.4 billion market," he added.

On top of that potential growth, Baker notes that the Dallas-based Monarch Dental has been able to boost revenues from acquired practices by about ten percent. Another advantage is insulation from potential healthcare reform. Whereas general PPMs rely upon Medicare and Medicaid to compensate for about 32 percent of revenues, DPMs only rely upon such sources for about four percent of revenue, Baker noted.

One thing for certain is that PPMs will continue to tap the IPO market. Whether they will be able to price potential IPOs or become fodder for existing public entities, companies within this largely privately-held industry will nonetheless continue to affect the IPO market.

"I tend to think we're in the first inning of a nine-inning game," Piper Jaffray's O'Neil said. "In general, we remain very positive about the outlook for the industry."

There's at least 100 private, venture-backed PPMs, O'Neil noted, adding that issuance from these companies will keep the IPO market flush with supply.

Even so, Ederer questions the marketability of all the supply.

"There are a lot of PPMs that are venture-backed that aren't going to make it to the public markets," he said. "That's fertile ground for potential acquisitions."

Nevertheless, the forward calendar is sprinkled with some offerings from the sector.

Late last month, American Medical Providers (Nasdaq:AMPZ) was slated to price 3.7 million shares, between a proposed price range of $10 to $12, through a syndicate headed by A.G. Edwards in St. Louis. American Dental Partners (Nasdaq: ADPI), slated to price two million shares through a BT Alex. Brown-led syndicate on the week of April 6, could stand to become the largest publicly traded DPM.

Physicians Trust, the operator of 14 neuro-musculoskeletal practices, filed its intent to test the public waters on March 3, through a syndicate headed by Radnor, Pa.-based Pennsylvania Merchant Group.

Stephen Lacey is associate editor of The IPO Reporter, a sister publication of Traders Magazine.

Traders hate rude interruptions. A breakdown in market-data systems leads to pandemonium. A faulty telephone connection is taboo.

So it is with a certain resignation that Nasdaq market makers are bracing for another interruption, and with nary a word of protest the implementation of the Order Audit Trail System, or OATS.

On March 16, the Securities and Exchange Commission made OATS official, mandating Nasdaq desks to install the real-time electronic system for gathering and reporting more than two-dozen trade details directly to the National Association of Securities Dealers. That's a mammoth operational challenge, as desks now have up to 90 seconds to send trade details after an order is executed.

But it wasn't exactly a sudden surprise. Several years back, OATS was a foregone conclusion. The NASD agreed to implement OATS as part of its settlement with the SEC in 1996.

OATS places a substantial systems and regulatory burden on each Nasdaq desk, requiring the desks to record order information based on the exact hour, minute and second of execution. That will allow NASD Regulation to better police trading abuses, such as front-running and trading-ahead practices.

"It's set in stone, it's a pain in the neck and we have no choice but to implement OATS," one market maker snapped.

OATS will be rolled out in incremental steps. By March 1, 1999, orders received by electronic communications networks or at the trading desks of market makers will be required to report data via OATS.

By Aug. 1, 1999, all electronic orders must be reported, while on July 31, 2000, all manual or non-electronic orders must be covered.

The new rules require members to synchronize the business clocks used to record OATS data, including computer-assisted clocks and mechanical time-stamping devices.

While the regulators might have had noble intentions, OATS has the makings of a technological storm, with companies spending thousands of dollars equipping for the systems changes.

This has lead to concern among smaller desks that the high cost of compliance could drive them out of business.

Nevertheless, some traders think most market makers will weather the storm. "Some small firms might stop making markets," said the head of trading at a four-person Nasdaq desk. "But I suspect most desks will continue business as usual."

The head trader's desk uses BRASS, the order-management and trade-routing system sold by Automated Securities Clearance Corp. of Weehawken, N.J. Automated Securities Clearance had good news, he said. When the deadline looms closer, his worries will be over with a simple flick of a switch and a reasonable service charge. (The trader declined to give the cost.)

"We're in good shape," the trader added. "But much smaller desks may not be so fortunate and may have to pay exorbitant costs to service bureaus and clearing firms to make the adjustments."

The basic technical requirement for the Order Audit Trail System (OATS) is that member firms create a reportable order event record, or ROE, for each event that occurs.

A ROE must be packaged into one or more firm order report and submitted to the National Association of Securities Dealers on a daily basis.

Firms can transmit these files in one of two ways a file-transfer protocol (FTP) or an e-mail message. In addition, firms must retain the data in order to respond to regulatory inquiries.

Firms will receive feedback on the status of their files via the transmission method used for the original transmission either e-mail or an FTP.

Member firms can use the world wide web to perform administrative functions and to obtain feedback on file status, order-event rejections and reporting statistics.

Sending Data

The NASD will support two network interfaces for the OATS: a private, frame-relay-based network and an Internet gateway. (See diagram opposite.)

The NASD is negotiating with a private-network provider and hopes to set-up a frame-relay-based network to connect any order sending organization (OSO) to the NASD facilities in Rockville, Md. This network will provide 56K-bps, or T-1 access from each OSO.

The NASD has an existing Internet gateway in place and intends to enhance this interface to accommodate OATS o.m. stem users. Internet users can utilize both the e-mail and web-access mechanisms.

electronic order order captured by a member in an electronic order-routing or execution system.

non-electronic order order not captured in an electronic order-routing or execution system; manual order.

firm order-report file file containing one or more reportable order event sent by an order-sending organization to the National Association of Securities Dealers.

OATS business day for example, Wednesday's OATS business day begins at 5:16 p.m. on Tuesday and ends at 5:15:59 p.m. on Wednesday.

Any events occurring during this period must be reported to OATS by 4 a.m. on Thursday.

OATS reporting day time period during which an order event must be reported to OATSs, otherwise, the event will be marked late.

Events occurring during an OATS business day must be submitted to OATS by 4 a.m. the next calendar day.

order-receiving firm National Association of Securities Dealers member firm subject to OATS reporting, which is defined as a firm that receives an oral, written or electronic instruction to effect a transaction in a Nasdaq security.

The instruction may originate from a customer, another firm or department within the firm.

order sending organization National Association of Securities Dealers member or non-member entity authorized to send order data to OATS.

A firm may send data on its own behalf or contract with another firm or entity to perform the reporting function.

reportable order-event record record representing an event in the lifecycle of an order, such as a receipt, cancellation or execution.

Member firms are required to report the reportable order-event record to the National Association of Securities Dealers.

Superblock trades win praise and publicity on Wall Street. But these glamorous deals occur infrequently and only among a handful of firms, negotiated by underwriters and stock issuers long after the markets have closed.

Smaller block transactions, worked by a growing list of broker dealers, are eclipsing the well-publicized superblocks, and their volume is surging.

In the booming stock market, these block orders journey at breakneck speed from initiation to sell-side execution, with the help of busy institutional, sales and position traders.

"Capital is pouring into mutual funds and retirement accounts," said Bill Allyn, head of block trading at Jefferies & Company in Short Hills, N.J. "The surge in these smaller block trades is a function of the enormity of the capital involved in the marketplace."

Ten elite firms completed 337 transactions of 1 million shares or more in January and February, according to AutEx, the Boston-based provider of block-trading data. The rest of Wall Street executed only 98 similar-sized trades over the same period. (AutEx is a unit of Thomson Financial Services, parent of Securities Data Publishing, publisher of Traders Magazine.)

All told, AutEx reported an advertised volume of 725.32 million shares in block transactions of 1 million shares or more in January and February. By comparison, AutEx reported an advertised volume of more than 8.95 billion shares in trade sizes of 100,000 shares or more over the same period. Trades in those blocks were more evenly spread among Wall Street trading firms, with 40 percent of the volume traded away from the ten top-performing desks.

AutEx noted that there were 51,234 trades of 100,000 shares or more in January and February. Of those block trades, only 435 topped 1 million shares. In the same period twelve months ago, AutEx counted 41,110 trades of 100,000 or more shares.

"The stakes are getting bigger and bigger," Allyn said. "There is real power on the institutional side of the business."

Astoundingly, most block trades can be filled in a matter of minutes. In fact, some institutional desks have the liquidity to cross trades themselves, and their is a growing list of electronic communications networks (ECNs) with the liquidity to match orders away from the sellside.

"Institutions just need more avenues for trades," Allyn said, "because the stakes have been raised so much."

Typically, block trades are transactions in which a sell-side firm matches orders or commits capital to buy a block of stock 10,000 shares or more from an institutional client. The firm then sells the stock to institutional customers for a profit.

In a superblock trade, an investment bank buys a block of stock from a stock issuer or major shareholder at a discount. The investment bank then breaks the order into smaller parcels and sells them to institutional clients.

Because of the incredible capital involved in buying superblocks the largest deals require more than $1 billion in capital trades are worked by investment bankers and underwriters away from the trading desk

But smaller block trades are surging, and more sell-side desks are handling the record flow of orders from institutions.

A block trade begins with a portfolio manager sending a large order to its institutional trading desk. The order ticket walked to the desk, telephoned or transmitted electronically is often followed with broad instructions for the traders.

"I always try to tell the desk how price-sensitive the order is, or how quickly the trade needs to be made," said Darcy MacLaren, a portfolio manager at Safeco Asset Management Company in Seattle. Managing $1.7 billion in assets, MacLaren has an average position size of $128 million or 400,000 shares.

"I tell our traders what I'm trying to do," she added. "When the market is moving, they give me their trade projections. The trading desk can be my eyes and ears to the market."

Once on the trading desk, the buy-side trader will survey market conditions to determine how best to handle the block order.

First, the buy-side trader will check AutEx and ECNs to establish a sense of how that stock is trading. If the liquidity is available on one of the ECNs, the trader can immediately fill the order.

For a clearer indication of an over-the-counter stock's activity, the trader can call a market maker. On a listed trade, the buy-side trader will ask a floor broker to check the specialist post, hoping for a report on the buyers and sellers with interest in that stock.

"From the market maker or the floor broker, I want to get a feel for how that stock may trade," said Brian Pears, head of trading at San Francisco's Wells Capital Management. Pears' five-trader desk handles blocks as often as 25 times a day. "AutEx and ECNs can't always capture what is happening in every stock," Pears said.

Once projections have been made, the institutional trader will contact a sell-side sales trader to begin working the order. "Sales traders are our representatives on the sellside," said Bob Rasile, head trader at First Union National Bank of North Carolina in Charlotte. "It is the sales traders we forge relationships with. We have to trust them with our orders."

When working an order to the sellside, an institutional trader must always be wary of negative market impacts.

If information is leaked that there is a potential buyer of a large block of stock, that stock's price may climb as other traders scramble to buy available shares, hoping to sell later as the price continues to climb. Unscrupulous sell-side firms may be less guarded with client confidentiality and allow information to spread.

"There is always a risk of market impact when you go through a broker dealer," said Stephen O'Neil, head trader at ARCO Investment Management Co. in Los Angeles. "Once the sales traders get involved, information can spread on the desk that there is interest in that stock. You have to trust that broker dealer not to leak trade information."

O'Neil whose desk handles several blocks each day may expose only two-thirds of an order to a sales trader, waiting to see how that stock will trade while retaining control over the rest of his order. But when the order is time-sensitive and an execution is urgent, O'Neil must risk market impact to get the trade executed quickly.

"The need to get in or out of a stock quickly may take precedence, and I may have to be more aggressive" O'Neil said.

When a block order can be worked more leisurely, the institutional trader may break the order into smaller parts, hoping to lower execution costs.

When working an order to a trusted broker dealer, a buy-side trader will be honest to a point about the size of the block.

"I try to always talk to the sales traders in ballpark figures," Rasile said. "If they have a natural cross, it is best for them if they know about how large my order is."

How quickly the trade will cross a natural sell order matching a natural buy order depends not only on the stock's liquidity and the price at which the stock is trading, but also on whether the price of that stock is climbing or falling.

"When the market is hot and I'm selling, I may not want to hit every bid I see because I can often get a better price," O'Neil said. "But in a down market, I listen to any bid that is close to my offer because I have to go with the market."

Buy-side traders usually work a block order to one sell-side desk. Breaking the order up and working it to different desks can create the appearance that there are multiple buyers or sellers in the marketplace, which may move the market.

"Breaking up a block does give you more flexibility," said Ken Ducey, head of trading at BT Brokerage in New York, an agency trading subsidiary of Bankers Trust. "But to keep market impact at a minimum, it is important to limit the broker dealers you work those orders to."

The buy-side desk must have a strong relationship with their broker dealers because they may need a capital commitment to get their order executed. When the sales trader is unable to find a natural cross for the block, the buy-side trader will often ask to have capital committed the sellside taking the other side of the block trade to fill the order.

Capital commitments happen more frequently for OTC orders because of the nature of the dealer market. Working a block order, a buy-side trader will send that order to a market maker specializing in the particular stock. And if the market maker does not cross the order with another customer, the market maker will act as a principal and fill the order.

On listed orders, a block trade is worked by a floor broker acting as an agent at the specialist post. If the floor broker is unable to find a cross at the post, the broker will approach the specialist to take the other side of the order.

On the sellside, sales traders juggle numerous block orders for their customers. Helping to execute trades for their clients, they communicate with the other sales traders on their desk, hoping to cross their clients' block orders.

"We shop bids and offers to our clients, working to get two sides of a trade to agree on a price," said Chuck Mercein, a sales trader at Furman Selz in New York.

Typically, two sales traders on the desk will come together to cross an order. The head position trader will oversee the cross to ensure best execution.

But recently, Mercein was able to cross a 100,000 share order between two of his own clients. Traders nickname the work on those unusual trades "home cooking."

The position traders must be involved in the executions arranged by the sales traders. "The head of the desk knows if we can commit capital, whether we are long or short in that stock and how that stock is trading," Mercein said.

Ultimately, it is the position traders decision to commit capital to fill an order that has not been crossed.

"When my sales traders have really covered the waterfront and can't find a cross, we tell the account we can't find the other side," said William Sulya, director of Nasdaq trading at St. Louis-based A.G. Edwards. "But as long as the buyside allows us to continue working that order, we will protect that block order on volume."

When protecting an order on volume, Sulya said his sell-side desk will commit capital and fill a block order if a block of the same stock is trading away from the desk. This encourages a customer not to send the order to another sell-side desk.

Said Sulya: "You have to acknowledge the risk the client has taken by not looking elsewhere for a natural cross."

A broker dealer is usually more willing to commit capital for a long-standing client. "Brokers are taking a more holistic approach to block trades," Allyn said. "You have to look at all functions of the relationship underwriting, research, offerings when committing capital for a trade."

In the end, it is the sell-side trader's job to fill the orders coming across the desk. Broker dealers build their reputations by providing speedy and low-cost executions. Institutions are more likely to send their orders to a desk with a solid base of satisfied buy-side customers.

"I told my team the other day that the bottom line is being an action-oriented trader," Sulya added. "We have to pull out all the stops to consummate every trade that comes across the desk. Quality execution will only bolster our relationships."

AutEx Block Transactions

Listed Securities of Top 25 Brokers

Trades of 100,000 Shares or Greater * Jan. 2, 1998 Through Feb. 27, 1998

Rank & Broker Dealer Advertised Volume # of Trades

1 Merrill Lynch & Co. 835,624,800 4,836

2 Goldman, Sachs & Co. 739,280,700 3,434

3 Morgan Stanley 667,643,7003,810

Dean Witter, Discover & Co.

4 Lehman Brothers 641,370,100 3,243

5 Donaldson, Lufkin & Jenrette 614,302,600 3,370

6 Smith Barney 613,832,000 3,960

7 CS First Boston 405,210,100 2,280

8 Bear, Stearns & Co. 395,212,900 2,191

9 SBC Warburg Dillon Read 258,351,500 847

10 Sanford C. Bernstein & Co. 229,472,500 1,286

11 PaineWebber 201,189,500 1,308

12 Schroeder Wertheim & Co. 190,001,700 1,135

13 Nationsbanc Montgomery Securities 189,436,000 1,099

14 J.P. Morgan & Co. 184,065,500 1,133

15 Prudential Securities 167,205,100 1,030

All Other Firms 2,620,935,400 16,272

Total 8,953,134,100 51,234

Source: AutEx AutEx Block Transactions

Listed Securities of Top 25 Brokers

Trades of 1,000,000 Shares or Greater * Jan. 2, 1998 Through Feb. 27, 1998

Rank & Broker Dealer Advertised Volume # of Trades

1 Goldman, Sachs & Co. 141,699,000 85

2 SBC Warburg Dillon Read 89,270,000 44

3 Lehman Brothers 73,313,000 49

4 Donaldson, Lufkin & Jenrette 69,089,000 27

5 Merril Lynch & Co. 59,929,000 39

6 Bear, Stearns & Co. 34,947,000 21

7 Morgan Stanley 28,432,000 23

Dean Witter, Discover & Co.

8 CS First Boston 26,843,000 19

9 Nationsbanc Montgomery Securities 20,611,000 12

10 Smith Barney 19,874,000 18

11 J.P. Morgan & Co. 17,775,000 9

12 Salomon Smith Barney 15,851,000 7

13 Nesbitt Burns 12,700,000 8

14 Schroeder Wertheim & Co. 11,818,000 8

15 Santander Investment Securities 10,250,000 6

All Other Firms 92,919,00060

Total 725,320,000 435

Source: AutEx

Eight years ago, Lee Bulleri was given two months to live. The doctors diagnosed stomach cancer. Bulleri was scared.

"They took out most of my stomach and my esophagus and I went from 220 pounds to 130 pounds in body weight," recalled Bulleri, the 56-year-old head and an over-the-counter trader at Sherwood Securities in Chicago.

Two nights before he was wheeled into surgery, Bulleri was at home in bed, cursing and swearing like a madman.

"I couldn't even swallow water. I was lying awake in the dark. I was talking aloud to God using a lot of four-letter words. This was going on for about an hour or so and my wife Patricia walked by and said, Lee who are you talking to'?

"I am talking to God, I am praying,' and she said, What, with that mouth of yours, you are talking to God?' I said, I am praying and if he doesn't know me by now, the last thing I want to do is tee him off.'"

"I asked God, Do I have to die and how do I die?' I said, I really don't want to die, I want some reason to live and to survive.'"

Bulleri paused for reflection. "Now God works in mysterious ways, as you know. I have this friend, Arnold Greenberg, a nice Jewish boy who worked in Denver for Sherwood before he recently retired. He's a little offbeat like myself, wears jeans and has a ponytail. His wife is an holistic nurse."

"Anyway, the next morning, the bell rings and a book is delivered, Getting Well Again [by O. Carl Simonton M.D. and Stephanie Mathew Simonton, Bantam Books] along with a tape on meditation sent by Arnold Greenberg. I read the book and listened to the tape. That night was the first night in weeks I slept without tossing and turning."

Bulleri had found hope.

Beating back cancer for 12 months, Bulleri was on sick leave from the Chicago Corporation (now part of ABN AMRO) where he ran the desk, handling orders routed by Sherwood in New York.

But he said something inexplicably mysterious saved his life.

His friends were dumbfounded. "I honestly think, given what Lee went through, another man would have crumbled and died," said Bill Black, a sales manager at Troster Singer in New York, and a friend of Bulleri's. "Lee is a very very powerful man. He has tremendous internal fortitude. He rose like the Phoenix from the ashes." Bulleri himself provides no rational explanation, but recalled facing the doctors when they told him he had perhaps a 20-percent chance of survival. "I have never done things like normal people," Bulleri said, "so why do you think I am going to sit down and die? I was obstinate."

Later, Bulleri, who likes a pint, was visiting a pub and saw a sign that said Good Patients Never Leave The Hospital Alive. The rest of the story is predictable. "I cursed the nurses, I cursed the doctors, I cursed the surgeons going in for my experimental treatments. A few months went by, then eight months, and I was down to 100 pounds and had tubes in me, and was as bald as a cueball, and I asked the doctors, What should I do?' And they said, Do what you did before you were sick.' So I realized they were not as smart as they thought they were."

Bulleri made a full recovery, gained weight and started living life again as the fun-loving sales trader with a new purpose in life. He calls it present moment awareness. Helping out a buddy. Living for today. Pressed, Bulleri says he mails self-help books to buddies and to strangers he meets at airports.

"He's probably the only person in the industry that does things for people that have nothing to do with business," said a friend of Bulleri's, Dennis Green, head of Nasdaq trading at Legg Mason Wood Walker in Baltimore. "That's really a rare quality."

This is the story about an Italian-American from the Southwest Side of Chicago, the son of hard-working immigrant Ottavio Bulleri, the youngest and eighth son of 11 children, who left the family farm outside Buenos Aires searching for a better material life in the Windy City. Ottavio, an Italian name, which translated, literally means the eighth son, died when Lee was 15.

But the old man would be proud of his only child, Lee. The younger Bulleri has status and made money on Wall Street. Even so, his friends say he still remains the unconventional Bulleri who wears cowboy boots everywhere, celebrates a 49th birthday each year either at the Brehon Pub or Erie Cafe in Chicago (the real one was bleak), frowns on computers, loves practical jokes and imagines himself as a benevolent gunslinger in the old Wild West. Bulleri is one of the most loved and popular people in Nasdaq trading. "My wife says to me, You may be getting chronologically older, but you refuse to mature,'" Bulleri howled.

Above all, Bulleri has a reputation for integrity. He says he built loyalty among Sherwood customers, promising and delivering the best bid and asked prices available when customers send their orders. "You don't hurt your buddies," he said. Sure, there is nothing wrong with payment for order flow, but he himself lets the Sherwood desk in New Jersey pick up that business.

"If you don't have integrity in your personal life, you can't come sit on a trading desk," said Bulleri, curving his thumbs behind the cowboy-size belt that hitches up his slacks, his fingers fidgeting the letters OTC stamped across the buckle.

"If you are a screaming jock with no ethics," he added, "you don't belong in the business. You may be profitable on individual trades for a year or so, but by the time your reputation has gotten around, nobody will do business with you."

"To know him is to love him," said Cindy Abbot, one of three people who work with Bulleri on the Chicago desk. (The other is Lynn Hagland.) "He gets a little carried away at times but he means well. He tells it like it is and people respect him for that."

Bulleri studied language, journalism and broadcasting but never really hit the books in college. He even played drums in a jazz band and worked in restaurants, bars, the dry-cleaning business, and on some nights only caught two-hour naps. He was in active service for one year in the U.S. Marines.

Bulleri says he might have become a truck driver but for a harmless penchant, gambling on baseball and football games. You see, the restaurant run by his stepfather, Alfredo Federighi he died in 1969 was a popular watering hole for traders from the Chicago office of a now defunct over-the-counter firm named New York Hanseatic.

"One of the traders said I should become a trader, and I looked at him and said, I don't know anything about trading,' and he said, Do you know anything about money? You're whipping my butt on the baseball.'"

Thus began Bulleri's first introduction to life on Wall Street. His break came in 1966 on the desk at New York Hanseatic's Chicago desk, followed six years later on the local over-the-counter desk of the since shuttered Drexhell Burnham Lambert. He later joined the desk at Chicago Corporation, handling the Sherwood order flow. The business was subsequently handled directly by Sherwood out of the same floor space headed by Bulleri. His son, Roy has followed him, trading at EVEREN Securities in Chicago.

Growing up in a close-knit, strongly Italian-American neighborhood, so close that people literally brushed each other praying in tiny St. Michael's Roman Catholic Church (which only had seating for 100 souls), you saw up close the lies and character in people's eyes. The neighborhood was a series of small stores.

Lee Bulleri's dad, Ottavio, first worked in a restaurant operated by his wife's mother, Margaretta Sibaldi, and later opened up his own restaurant and a small frozen ravioli company in Chicago. His mother Justine, in her 80s and hale and hearty, ran a dry cleaners, and still goes to work at the same building where she now runs a tailor shop. (Margaretta Sibaldi died in 1944 and her husband Angelo lived until 1988, to the ripe old age of 100.)

"What I remember most is sitting down to eat dinner at the dry cleaners, and five or six people walk in and Dad would invite them to sit eat with us," Bulleri recalled. "It was very neighborly."

Bulleri remembers attending his first cocktail party hosted by the Security Traders Association of New York. A guy introduced himself as the man at Merrill Lynch & Co. who crossed 100,000 shares that day.

"I said, Jeez, I just work on the desk at New York Hanseatic writing up tickets. It's a pleasure to meet you sir.' And he said, One of these days, you'll do 100,000 shares'. So I am talking to this guy for 20 minutes and my boss comes over and says, Why are you talking to that smuck for? That smuck is no big trader at Merrill, he's a wire operator.'"

Bulleri's upbringing on the Southwest Side of Chicago did not prepare him for over-sized egos, and his STANY encounter taught him a valuable lesson.

Bulleri first started trading on the predecessor market to Nasdaq: the original OTC market where technology was mostly telephones and quote terminals. Nasdaq was established in 1972. Perhaps that start explains why Bulleri is no fan of computers (though he is no Luddite, and he does think some computing is necessary).

"In those days, you didn't see the whole market. You called up three desks to get an inside market, but being a sophisticated trader you usually knew what the market was anyway," Bulleri explained.

The sheer nature of this hands-on marketplace fostered some clubby relationships (though regulators would later claim some of these relationship were too close for investor comfort). Information was sometimes traded over bottles of beer.

Bulleri described the environment. "After the market closed, all the traders would meet at the bar and one of them would say, Hey, there are buyers out on XYZ stock' he wouldn't know how many or how much they were buying and I'd say, A buyer lifted me in that stock and I ended up shorting some for him and now I've lost my position.'"

After work, Bulleri knew how to blow off steam. Once he and some friends hijacked an off-duty cabby because they wanted to travel cross-town in a hurry. Fortunately, the cabby had a sense of humor. "We paid him the correct fare, and we drove him with us to the party," Bulleri said.

Another time, Bulleri went buying martial arts gear in Chicago's Chinatown for Bill Black. Black vividly remembers the episode. "He put this guy on the phone to me who spoke in a Cantonese dialect and had very poor English. But by the time Leroy had done with him, he was speaking like an Italian-American."

Success hasn't changed Bulleri. He has the common touch. Last month, he put down 120 mail-order plants in his Chicago suburban garden. In Florida, where he maintains a home in Fort Meyers on the Gulf Coast, neighbors sometimes confuse him for a caretaker because he is constantly dressed in duds, his head covered by a bandanna pottering about the garden.

Bulleri is full of common sense, his friends say. Asked a question about changes in the equity markets and he responds that if market makers put their capital at risk then there must be an incentive for them. That incentive is being squeezed because of narrowing spreads.

Bulleri gives this story. "I was in a bar and told this trader to stand at attention with his hands at his side. Now I took my finger and pushed him a little, and he was off-balance.

"So I said, Spread your legs a bit, I mean just a bit, maybe even six inches.' So he spread his legs and I poked him and I couldn't budge him. I said, You see the difference? We are not talking about a big spread but enough to support your balance and weight.'"

Bulleri is not always that serious about matters. The secret to long life, he says, is laughter and not waiting until retirement to "goof off."

"You goof off along the road, hop into pubs and have a pint or two along the way," he said, and he is making no apologies.

Late last summer, analysts were high on Peregrine Investment Holdings, a ten-year-old investment bank that grew from a specialized company to one of Asia's top stock underwriters and equity brokerages.

Anne Gardini, head of research at ABN AMRO Hoare Govett Asia in Hong Kong, noted that the firm was trading at 9.3 times forecasted 1997 earnings.

The Wall Street Journal wrote: "The surge in Hong Kong and Chinese stocks has some analysts and investors figuring that the Chinese year of the ox may be the year of the bull market for Peregrine Investments Holdings."

Earlier in the summer, Mark G. Holowesko, president and chief investment officer of the venerable Templeton Global Equity Group, topped up his holdings in Peregrine stock, prompted by the firm's "fantastic job" of building China-related business. Then the bottom fell out.

The Real Story

On a cold night in early February, Gary Greenberg, the defunct Peregrine's former chief investment officer, shared with Traders Magazine the real story behind Peregrine's collapse in a telephone interview from his home in Hong Kong:

"What happened to Peregrine? Peregrine blew up because it was not able to manage the transition from the old world of broking to the new world, from the club system to the corporate system of financial services," Greenberg said, between coaching his son in Super Mario Brothers (the popular children's video game).

Peregrine apparently had the dubious distinction of being entrenched in the big stakes game played by the more entrenched big boys of brokerage without really "belonging," Greenberg said.

"Peregrine was only able to compete within the new, much tougher environment by taking risks that others were hesitant to take. That's one aspect," he added.

One U.S.-based trader familiar with Peregrine's business agreed. Steven Klein, director of global equity trading at American Century in Kansas City, said Peregrine had to be a risk taker to compete with other major Asian outfits.

"As it ratcheted up successes in those last 18 months or two years that they were really flying, it became very public, very prominent," Klein said. "It was a heavily competitive global environment for a firm the size of Peregrine."

Klein described American Century's relationship with Peregrine as "lengthy and strong," dating back to Peregrine's infancy. American Century executed equity business with Peregrine's brokerage arm in Asia.

Initially, the fund dealt with them directly through Peregrine's traders in New York, and then, after American Century opened its Singapore office, it dealt through Peregrine in Hong Kong.

Klein says Peregrine had about half-a-dozen sales traders in the Hong Kong office. "It was a significant operation, one of the very largest brokers in that region," he said.

As negative rumors started to swirl last fall around many firms based in Asia, Klein was hopeful that Peregrine would escape unscathed.

"We had been dealing with them within a week or two of when the disaster befell them," he said. "Only the week before, a persistent story began to develop that had credibility."

American Century immediately bowed out of its relationship with Peregrine for fiduciary reasons. When the crash came, American Century had no exposure to Peregrine.

"Rumors were that it had a really significant exposure in the Indonesian capital markets, which it had hoped to move out of very quickly, but got stuck," Klein said, adding that he never did learn the full story.

A Flat Organization

Greenberg knows what happened. "The Merrill Lynchs and the Goldman Sachs are just more conservative [than Peregrine]," he said. "They have higher risk control, more layers of management. That's such a buzz word. Today, everybody's looking for firms that are entrepreneurial,' that don't have a lot of layers. Well, Peregrine was the ultimate in that a flat organization with very few layers of management. And, the problem is that if you allow inexperienced people to rise too quickly, you get into trouble.

"So what happened at Peregrine was an inexperienced person rose to very near the top of the organization, relatively quickly. Well, I don't know how quickly. I don't know exactly how old Andre Lee is, probably in his mid-thirties, young thirties. But Lee did not have a lot of experience in managing."

As Greenberg tells it, Lee went from trading at investment-banking giant Lehman Brothers to global head of fixed income at Peregrine. "And pretty soon Lee had 240 people reporting to him, and he in turn reported to the chairman of the company [Peregrine]," Greenberg said. "All of a sudden, he went from ten layers over him at Lehman to only one at Peregrine, which apparently was perhaps too lean and mean. In retrospect, it was anorexic. So there just weren't enough layers in management."

Traders Magazine spoke with several people answering the phone at Peregrine's office in Hong Kong, and another person in the former British colony, working out of the office of Peregrine's liquidator, Price Waterhouse. They were not able to locate Andre Lee for comment.

Press Accounts

According to press accounts, Peregrine went under because of a large loan, of which John Lee [no relation to Andre Lee], Peregrine's risk controller, was not aware. The recipient was Steady Safe, an Indonesian transportation company. The company was said to be well-connected with Indonesia's power elite, including one of President Suharto's daughters.

Even with the crisis in Asia, the loan wouldn't have looked so bad back then. "This was last summer, and the thinking was that Thailand had problems, Malaysia had problems, but Indonesia really was a better-managed economy," Greenberg said.

He recalled: "Peregrine, which had successfully avoided the Thai and Korean meltdowns, was feeling pretty clever and was sure that Indonesia didn't represent the same kind of risk." John Lee apparently knew there was exposure to Indonesia, but didn't appreciate the size of it until it was too late, because it was being written "in dribs and drabs," Greenberg said.

"At the peak, $250 million was outstanding to Steady Safe, representing at one point approximately 28 percent of Peregrine's capital of $850 million in equity. Not really good risk control," Greenberg said. He said no one would have approved the loan if it was more transparent to upper management. But it happened "two million here and two million there" coming out of Andre Lee's fixed-income department. [The loan was backed by bonds.] "So, the controller was out of the loop," Greenberg said.

Of course, the loan, believed to have been made in August, preceded the Asian currency meltdown over September and October, during which the exchange rate of the Indonesian rupiah plummeted from 2,300 rupiah to 16,000 rupiah for one U.S. dollar.

"It was pretty unbelievable," Greenberg recalled. "You don't normally have currencies that drop 90 percent. So that pretty much destroyed the company."

Greenberg said there was a lot of other Indonesian paper on the books besides that loan. The debacle of the $250 million loan to Steady Safe must be seen, however, in this context: the huge dive in the lender's assets on paper as the rupiah took its unmerciful plunge. Greenberg gave this explanation.

"Think in terms of a balance sheet," he said. "The assets stay in the local currency and the liabilities in the foreign currency. So your assets shrink, in dollar terms, while your liabilities stay the same.

"Consequently, what happened to all Indonesian companies with dollar debt, was this: though they looked good before the devaluation, they were effectively bankrupted after the currency crisis. So all of corporate Indonesia effectively went bankrupt.

"Peregrine, which had a good amount of exposure to Indonesian corporate paper, was unable to get its banks to rollover their lines [of credit] to the company."

Leverage

Ironically, Peregrine was not heavily leveraged, compared to most American investment banks. But given the crisis of confidence and, perhaps most critically, the lack of deep-rooted relationships with their lending banks (First National Bank of Chicago, a unit of First Chicago NBD Chicago reportedly was the first to pull the plug) the combination spelled disaster.

The next move? A white knight. There were rumors that the Bank of China was willing to step in and that Peregrine chairman and co-founder Philip Tose nixed it in favor of a more blue-chip investor, namely Switzerland's Zurich Insurance Company.

Greenberg declined to comment. But he did say that Zurich was just about to make the deal when some of the lenders decided not to rollover their loans and the deal fell through, forcing Peregrine into liquidation. The Hong Kong and China Equity Team was sold to Banc Nationale de Paris and the remainder of the equity team was sold to Banco Santander, in Spain.

If there was a defining moment for Greenberg, it was on that Friday morning in January when he arrived at his office and heard that the Zurich deal collapsed at 5:30 a.m.

"Everybody sort of went numb," he said, "because they all expected the Zurich deal would succeed. No one told anyone typical mushroom management. However, we heard through rumors that things had not gone well. By 6:30 p.m. that evening, the call came from the chairman that we were going into default.

"Actually, I was summoned to a last-minute meeting prior to that on that same day, with a large U.S. institution, a prospective white knight to try to pull us out. But they weren't prepared to make such a big decision within six or eight hours."

Eventually, Greenberg accepted an offer from one of Peregrine's larger clients, Van Eck Global. He's joining Van Eck as managing director of Van Eck Global Asia and chief investment officer of its affiliated international equities business. The new post will see him move back to New York by year's end after a nine-year absence. Greenberg, who hails from Chicago's South Side, is happy again. "I'm going back to my roots. And, yes, you should get me a beer at Harry's in Hanover Square [in lower Manhattan] get me several," he said.

Peregrine Investment Holdings was once one of Asia's largest investment banks. And boy was it ruthless.

Peregrine cultivated an unforgettable reputation as a financial warmonger. It was, in the words of a New York Times reporter, a swashbuckling symbol of Asia's boom in the 1990s.

Pushy and Competitive

Founded in 1988 by a brash former British Formula 3 race-car driver, Philip Tose, and billionaire property developer Li Ka-Shing, the Hong Kong-based company pushed its 2,100 staffers worldwide to be competitive. Tose said he made Peregrine the company people loved to hate. Peregrine's weekly analytical reports were titled Greed and Fear.

That visible pushiness, however, helped to vault Peregrine to the very top, making it Asia's biggest underwriter of stocks, with 33 offices in 15 Asian countries and other major global centers.

Tose and his team at Peregrine's headoffices in Hong Kong stood out in the crowd of stiff upper-lipped and tradition-obsessed financiers in the former British colony.

Corruption

But Peregrine's culture did mirror contemporary Asian standards. Its relentless pursuit of deals, its wining and dining of well-connected government officials, and its ability to skirt the boundaries of securities law, reflected the region's unprecedented growth and its acceptance of fraud and corruption.

Alas, Peregrine's connections were not as entrenched as other bigger players, and that, observers say, contributed to its sudden demise. Still, Peregrine's brass marbles were as large as its lifestyle. It paid its top staff some of Asia's largest salaries, and chauffeured executives from their homes to the office in gleaming Rolls Royces.

Peregrine was practically an Asian company. But it did have a small U.S. presence. Peregrine Asset Management (USA), a San Francisco-based U.S. subsidiary, managed one mutual fund and was co-manager on several similar portfolios. Peregrine Asia Pacific Growth Fund had about $14 million in assets.

William Hortz, the former president of Peregrine Asset Management (USA), said in an interview earlier this year that it did not suffer the same financial problems as its parent. At the same time, a sale of the fund to another U.S. money manager was being negotiated.

Hubris

In the end, Peregrine became a victim of its own sense of hubris, one Hong Kong trader maintained, collapsing spectacularly overnight as the Indonesian rupiah pounded Peregrine's capital and almost guaranteed that it will never recover the full $400 million it loaned to companies in Indonesia. That money includes Peregrine's biggest loan, $260 million given to the ironically-named Steady Safe.

Back in August, Peregrine's own research report argued that the rupiah's dips were not alarming. They "certainly look overdone and suggest a countertrend may be overdue," the report said.

John C. Gleason began his Wall Street career on the sellside, 36 years ago. He traded for now-defunct Laird Bissell & Meeds in Wilmington, Del., then a part of Dean Witter. One of the firm's first block traders, Gleason shopped orders over the telephone, trying to unload large positions.

"When I was on the sellside, a big block of stock was 10,000 shares," Gleason recalled. "Now, desks don't waste their time with orders that small. Volume has skyrocketed."

"After a while," Gleason added, "smiling and dialing got pretty old for me. I didn't like blindly trying to sell big blocks. I eventually needed to get off of the sellside."

So after 15 years of block trading at Laird Bissell & Meeds, Gleason took a post heading up the buy-side desk at the Wilmington Trust Co. across town. He is still head of the equity desk 21 years later.

"Block trading today is a lot different than it was when I started," Gleason said. "Blocks are all done electronically, and with ECNs [electronic communications networks] and third-market firms, there are so many newer places to bring business."

Trading for 28 portfolio managers with more than $116 billion in trust accounts and assets under management Gleason is still trading big blocks of stock.

A large bank with customers in all 50 states and 13 foreign countries, Wilmington has the 12th largest personal-trust department in the U.S. Of the banks $116 billion under management, $27.4 billion is invested in equities.

His desk, which includes two other traders, handles between 200 and 300 trades each day. While the desk regularly executes small orders, it more often handles trade sizes of more than a hundred thousand shares.

Gleason tries to limit the broker dealers he actively works with to about ten, forging a strong relationship with those firms. "We try to keep our list down rather than shotgunning orders all over the place," he explained. "You get more bang for your buck that way. Every one of those brokers will get a decent clip of our orders."

Of the investment products handled by Wilmington portfolio managers, small-cap funds usually require more effort on the desk.

Gleason said block orders in larger, more liquid stocks are executed in a matter of seconds. But an illiquid small-cap block can sit on the desk for a week.

Gleason added that a block order in a smaller stock tends to impact the market immediately. Figuring out how that stock trades, he can advise his portfolio managers to hold the position long enough for that stock's price to stabilize.

"When I started in this business, over-the-counter trades were unusual," Gleason said. "Now, Nasdaq has become incredibly prominent, and we are trading more small-cap stocks. You have to constantly learn how to trade different products."

Gleason is fascinated by how much learning is still involved in his approach to trading. He regularly attends industry forums and seminars, and subscribes to a number of Wall Street publications. "You can't be caught in the lurch on new developments," he said. "You need training to stay on top of everything."

Challenged by his transition to the buyside, Gleason was trained by his predecessor at Wilmington before fully taking control of the desk. He finds that many younger professionals in the industry lack proper training in their positions.

"Firms are throwing kids into spots without real training because business is so heavy," he said. "And I think more young people are surging into the market than ever before."

Gleason blames the surging bull market for the lack of training for younger professionals. With business growing so rapidly, firms need to fill positions with employees before they can be properly trained.

"My generation of traders were thinned out because I worked through a bear market," Gleason added. "This market is attracting kids in droves, and firms are plugging them into positions before they are really ready."

A battle-hardened veteran of the equity markets, Gleason is still enjoying himself and learning about the business. And with his youngest son still in college, he doesn't plan on retiring any time soon.

He still lives in Wilmington with his wife of 30 years the two have four adult children just a 20-minute walk from his office.

"This is a large organization, but everyone from the chairman on down the line is accessible," he said. "There is a corporate feel to the bank because we're so large, but the bank is big on building a community feel to our operations. I'm happy here on the buyside."