I Need Help Solving This Silicon Valley Mystery
I am three months away from being homeless and I just met a man who explained how the arbitration system is rigged and why I never had a chance for a fair trial.
I also have a stock certificate for over half a million shares. These were originally founder shares that got divided up during our divorce. I saw a notification online that the shares in this company were being swapped but no one contacted me and no one that I contacted would talk with me.
During our divorce, my soon-to-be ex-husband declared that we had over ten million dollars in stock so that spousal support would not be necessary. But that stock disappeared under suspicious circumstances (at least to me) and it wouldn’t be until after the arbitration that my ex-husband would tell me that everyone knew what was going to happen to the company. Everyone, except for me.
So, before I end up sleeping on a park bench with no internet connection, I am asking the internet/universe for help.
By the way, the companies involved are publicly traded and all the information can be found online. The actual document from the binding arbitration detailing the names, votes, and signatures of everyone who participated can easily be found by anyone. If you go to the Finra.org website for mediation and awards, you can search my name (Susan Bostian), Merrill Lynch, and my broker’s name, (Robert Gallo.) Or you can search for Case Number: 04–05887.
Here’s the actual link to the document. https://www.finra.org/sites/default/files/aao_documents/04-05887-Award-NASD-20060130.pdf
The outcome of my arbitration trial always seemed suspect. There were three panelists who listened to both sides of the issue.
The head of the panel, Herbert L. Brown, who was the industry expert, voted for me.
The other two people on the panel, Keely D. Parr and Peter Kassel, the public, for-hire arbitrators, voted for Merrill Lynch. No reason. No explanation. No way to appeal.
I tell this story to a random man who I meet on one of my daily walks through Palo Alto. I tell him about suing my broker and participating in a binding arbitration. He asks me if I had thought I was going to get a fair trial. He laughs when I say, yes. He says the entire system is rigged and I never had a chance at winning.
He tells me that public arbitrators and their votes are public knowledge and the same people keep getting hired and paid over and over again by the same corporations.
I tell him that I am a few months away from being homeless. I explain how my ex-husband made a deal with me during our divorce to allow me to purchase our family home. But, because of our broker’s actions, I lost our home, our stock, and ultimately the binding arbitration trial.
I really believed that it was an honest opportunity for justice. The mystery man shakes his head at my naiveté.
We stood on the pedestrian bridge between Palo Alto and Menlo Park, California and talked for two hours. By the end of our conversation, I was shaking from the cold evening air and his words.
If my story ends like this and I am living on the streets instead of our old family home, which is now worth over four million dollars, I will not be homeless because of drugs, alcohol, or mental illness. I will be homeless due to my broker’s actions and a broken system.
And if the injustice of the arbitration process is well known and accepted this will be even more outrageous.
And, if you think this can’t happen to you, I would like to point out that if you have opened an account with a financial institution, then you have probably signed a document that says in case of a dispute you will agree to settle it through the binding arbitration process.
The man I met on the bridge said he had worked in tech and then transitioned to finance. He said he had seen it all. He said he was connected to a lot of important people in Silicon Valley but didn’t want to drop names. He said that life had worked out very well for him and he was very comfortable, but he had friends who had ended up living in their cars.
He said his name was Stan and he was from the Main Line in Philadelphia. He said his experiences in Silicon Valley had made him cynical and the system was definitely not fair. As the mysterious man walked away that night, I wondered if he was right.
My conversation with this mystery man, Stan, and my impending deadline to becoming unhoused, triggered memories of how the dream of financial freedom has been replaced by this grim reality.
Before I end up living on a park bench or in my car, and before you make assumptions about who I am and how I ended up here, let me provide some background for you.
I have a bachelor’s degree in psychology. I was married to a professor from Brown University who became the founder and CEO of a startup called Microcide Pharmaceuticals in Silicon Valley. I was celebrated for my volunteer activities and the lunch program I started at Oak Knoll Elementary School in Menlo Park where I fed the whole school and provided free hot food to disadvantaged kids.
Brook Byers, a partner if the venture capital firm, Kleiner Perkins, once came storming up to me at a resort in Palm Desert, announcing to everyone, “So, this is the Bostian that I’ve been negotiating with!”
At the time, we had just moved to California and I confess that I had no idea what Brook Byers looked like. At that moment, I thought he might be Robin Williams. I don’t remember what was said next, and he and his entourage swooped away just as quickly as they swooped in.
My ex-husband declared during our divorce that we had ten million dollars in assets not including our home.
I still have a stock certificate for over half a million shares in a company that I can’t find.
My point is, if I can end up homeless, than so can a lot of other people. Perhaps, I can speak for those who cannot. And, maybe the next time you look at a homeless person you will see them just a bit differently.
Also, to quote Steve Jobs, “Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.” Or seek out the truth.
There’s a pivotal moment in the year 2000 where I am one decision away from owning our family home which is now valued over $4,000,000. So, how did I go from retaining our family home to homeless?
Here’s the backstory. 1984. The Hot Club. Providence, Rhode Island.
It’s a place where journalists, politicians, and artists meet and mingle. While I am there with my friends, my future husband walks in and starts talking to me. At the end of the evening he invites me to go with him to Edinburgh.
We never make it to Edinburgh but we do get married the following year. He’s a professor at Brown University and I’m a writer at the Providence Journal. He’s a molecular biologist and he thinks my biological clock is running out. Our first baby arrives a year later.
As I am holding our newborn in the hospital, he says he needs to meet someone for a quick coffee. Three hours later he returns and says he has accepted a job with Merck Pharmaceuticals. Six months later, we move into a beautiful English Tudor style home in the lovely neighborhood of Westfield, New Jersey. Another child, a home remodel, and life is good.
In 1991, my husband tells me that we are invited to a dinner in the posh neighborhood of Short Hills, New Jersey. I am introduced to David Schnell and Kevin Kinsella, two entrepreneurs from California. They explain that they have been brainstorming with my husband and have asked him to imagine his dream company.
After he has shared his vision, they tell him that they would like to make it a reality. They offer him the role of founder and president. But, they insist that the company be based in California. We are reluctant to leave our lovely life in New Jersey. But, they tell us that if we make this move, we will never have to worry about money again.
We agree to a visit to the San Francisco Bay Area. We are excited to explore the area and the possibility of a move. After a discouraging first day of exploration, one of the venture capitalists, David Schnell, offers to come over to our hotel and babysit our children for the evening so that my husband and I can go out and experience Palo Alto on our own. David Schnell is also a medical doctor and I think he must have taken the Hippocratic Oath to do no harm.
Today, according to his website, David Schnell is the owner of a venture capital firm managing over a billion dollars in assets and part-owner of a major league sports team. He will eventually crash my husband’s company and take off with the intellectual property, according to my ex-husband. And after our millions of dollars in stock become worthless and I call him on the phone, he will refuse to take my call. But on this night, I trust him so much that I leave my children in his care.
He tells us that if we take this opportunity and build this company, we will never worry about money again and we need to do it for the sake of our children. Our little angels are sleeping, and we promise to consider this as we walk out of the lovely Garden Court Hotel and into the Palo Alto night.
Two days later we say yes, to California, and Microcide Pharmaceuticals is born.
But, then, it gets complicated. Over the years, there are patents, the horse and pony show, and an IPO. And stock, and warrants. Supposedly, even “The Fonz” is an investor.
There are spinoffs, including one called, Iconix Pharmaceuticals, where we have over a million shares. And there’s a company called Essential Pharmaceuticals, Mpex, and then Qpex, but it’s becoming harder to follow the dots.
I am busy raising our children and volunteering in the schools. I’m the wife who entertains possible new employees, and helps the wives of the new hires to acclimate to California. But, I’m unaware of most of the financial maneuvering. I never see any income statements or tax documents.
Until the divorce. And then suddenly, there are lots of shocking revelations.
It’s 1999, and my husband produces statements and declarations of our gross and net worth. At one point, he says we have over ten million dollars in stock and warrants. I remember the day he said this and I am surprised to learn that we are “rich.”
During the negotiations, I ask my attorney about spousal support because we’ve been married for over 13 years. She says that considering how much money we have in stock that it would appear greedy on my part to even ask.
I remind her that I gave up my job as an editor at a newspaper a week after I gave birth to our first child. I moved away from my family, friends, and professional network to support my husband’s career and stayed at home to care for our children. I tell my attorney that I haven’t worked outside the home for a very long time. But, my attorney assures me that I will have plenty of money to care for myself and my children.
The assets are divided and I receive over a hundred thousand shares of Microcide and over half a million shares of Iconix Pharmaceuticals. I also receive a portion of Microcide warrants which my ex-husband will continue to manage.
Eventually, we come to the issue of what to do with the family home. Initially, I think a return to Rhode Island would be beneficial but, I change my mind when I see how much the children want to remain in California.
Our children plead with their dad to let us stay in the family home. He offers us a deal. He tells me to instruct our broker to sell the Microcide stock and give him a million dollars in cash. He says he will sell his portion of our home to me for one million dollars. He says he will also call our broker and explain the situation. I agree, and I tell our broker to sell all the stock immediately.
But, then my husband decides he wants to put the house on the market and says that I will need to match the highest offer. He tells me that if I discuss this with my divorce attorney that he will cancel our deal. I tell my attorney anyway, and she says I should just go along with what my husband is offering.
For approximately a month, I call my broker, Robert Gallo, every day. I ask him how much stock has been sold and how much money is in my account. He says he’s not really able to sell much. I remind him that I desperately need the money so I can buy the house and to just sell the stock at whatever cost it takes to get the cash.
Finally, the night arrives when the offers are being presented for the sale of our home. My husband and the real estate agent are in her office. My children and I are listening by phone. There are multiple offers. At the end, I tell my husband that I can still meet the highest offer even though the broker hasn’t sold enough stock yet to give him all the cash. I tell him that I will give him whatever money that the broker has gotten and keep selling the stock until I can match the highest offer on the house.
My husband agrees and says he will talk to the real estate agent and call me back. The children and I are ecstatic about being able to stay in our family home.
After about thirty minutes, I have not heard from my husband. I call the real estate agent and tell her about the deal that I have with Keith. She tells me that Keith had already gotten an order from the judge that the house will be sold to anyone but me.
I have never been more blindsided or devastated. My children are crushed. I ask to speak to Keith, but he refuses to talk with me.
I call our broker, Robert Gallo, the next day and tell him what has happened. I tell him I just want him to dump the stock. I want out. The price of the stock is dropping but he tells me that I need to wait. We go back and forth. I don’t want to own this stock anymore. He finally convinces me that the stock always goes up at the beginning of the year and if I wait a couple more months, then it will be much more advantageous for me.
A month later, my now ex-husband says that he is going to exercise his warrants and I have the opportunity to do the same. He tells me to write a check for fifty thousand dollars, give it to him, and he will tell our broker to buy the warrants. I don’t understand the process but I trust that our broker will perform his professional duties with honor. I give the check to my ex-husband.
At some point, I receive a document asking me to vote on some proposition regarding the Microcide stock. I ask my ex-husband what it’s about. He tells me that it doesn’t matter if I vote or not. David Schnell is the major stockholder and the company is ending. I call my broker, but, the stock price has plummeted. I don’t recall why, but the stock has become worthless. Also, it appears that the broker took the money for the warrants but never exercised them and they have also become worthless.
When I explain what has happened to anyone in the financial sector they are appalled and tell me that I need to take action against the broker. At some point, I learn that Robert Gallo is also the broker for another executive in Microcide Pharmaceuticals and he was the friends and family broker for the IPO of the company.
I will later learn that he could have sold the Microcide stock for a lesser amount of money just to get the cash I needed or even had Merrill Lynch buy it because they handled the IPO for the company.
Much later, my ex-husband will tell me that the company executives were trying to negotiate a deal for the sale of the company, and it would have looked bad if someone with the same name of the founder was dumping stock.
Everyone I talk to about the situation, tells me that I need to sue my broker. Someone recommends Jim Towry who says that even though he has never handled a case like this he would be willing to take it on.
And then, we learn that we cannot technically sue the broker. I have already signed something that commits me to participate in binding arbitration.
Here is where we present our case to the panel of three people and I truly believe that justice will be served. For three days, I sit on one side of the table with my attorney. My broker, Robert Gallo, (who I have only met once at the pre-trial meeting), his manager, and the Merrill Lynch legal team sit across from us.
Although Robert Gallo never met with me in person, as I requested after the divorce, I remember telling him on the phone that I am clueless about finance. I explain to the panel that his response was to send me a book titled something like “Finance for Dummies.” I look at him as I explain that I thought of him as my “financial husband.” I learn during the arbitration that Microcide had the highest risk rating of any stock and was inappropriate for someone in my financial situation. Robert Gallo refuses to look at me. He will agree that I asked him to sell all my stock but he did not.
After the evidence is provided, Herbert L. Brown, the industry expert, who is also the head of the arbitration panel, agrees that the broker has breached his fiduciary duty and has been negligent. He votes for me.
But, the other two public, for-hire, panelists, Keely D. Parr and Peter Kassel, vote for Merrill Lynch. No reasons or explanations. No opportunity to ask questions. No appeal.
Robert Gallo asks for this action to be expunged from his record. He is denied. However, today, I cannot find a record of this arbitration on his record.
It appears that my mystery man, Stan, may be correct.
So, I am asking for help from the universe. Is the arbitration system really rigged? Is this common knowledge and if so, why is it allowed to continue?
And if it’s legal, but ethically wrong, and some random people have this knowledge, why don’t the rest of us know about it and say something?
Are there any remedies available to someone who is forced to participate in an allegedly unfair system?
Does anyone know what happened to Iconix Pharmaceuticals? Is there any value to my 521,170 shares? And was anyone else able to swap them for a different company?
I’m grateful for being able to reach out and connect with so many people who might have answers to these questions. You are welcome to contact me publicly or privately.
I am a 72 year old grandmother. Instead of baking cookies with my grandchildren in my home, it seems that I will be sleeping on sidewalks begging for crumbs.
I would like to know the truth.
Thank you in advance for any help that you might be able to provide.
You can reach me by email at susanbostian263@gmail.com
