Randy Smith and the destruction of the American newspaper

Read Part 2 here.

Part 1 The Birth of an Empire

By Julie Reynolds

Randall D. Smith is many things, but he’s not a man who’s ever showed an interest in protecting journalism.

Yet through his New York hedge fund firm, Alden Global Capital, Smith controls a U.S. newspaper giant — Digital First Media, which publishes scores of papers from the Eastern Seaboard to the San Francisco Bay Area.

In the past five years, Smith’s aggressive property sell-offs and budget slashing have gutted some of the country’s most beloved newspapers and their corresponding websites, even while they’re still quite profitable. And make no mistake — Smith has done this deliberately. As a specialist in “vulture” investments, he seeks out distressed businesses and plunders them with a ‘get in, sell all assets, cut costs like never before, and get out just before it tanks’ strategy.

Or as media analyst Ken Doctor more politely puts it, “milking the company as much as possible.”

Smith has not responded to requests for comment made over many months. But a question that’s vital to the public interest lingers: who is this man who has quietly taken control of what is still the nation’s most looked-to source of information?

The 74-year-old Smith, according to a New York Times profile published more than two decades ago, abhors publicity and avoids cameras. This still appears to hold true — an extensive online search yielded only a single photo of Smith, published by the New York Post in 2012.

His companies’ filings with the Securities and Exchange Commission back up this aversion to public disclosure. The net worth of his holdings is never revealed in these documents, because all of Smith’s many business entities are privately held.

Anyone curious enough to search the few paper trails that exist will likely tear out their hair in frustration. Smith is fond of using small, close-to-the-vest entities known as Limited Liability Corporations, or LLCs, that can mask the true ownership of his assets. Even one of his wife’s cars has been held by an LLC. So has the printing plant of The Denver Post.

He’s also fond of offshore locations, headquartering companies in the Isle of Jersey and the Cayman Islands — well-known as tax secrecy havens. Any corporate paper trails there, too, quickly lead to dead ends.

But the few published profiles of Smith, along with public records, have revealed some basic themes. Together, they tell the story of a man determined to make his fortune from the misfortune of others.

Smith was born in 1942 and was a Cornell and Wharton Business School graduate.

He wasn’t interested in becoming a media mogul when he started out. It was his younger brother Russ, in fact, who had his eye on the news business.

Russ Smith founded the Baltimore and Washington, D.C. alt-weekly City Papers, selling the companies for $4 million before founding the New York Press in 1989. A sort of freewheeling Libertarian-ish Republican, he wrote the Post’s many-worded “Mugger” column for 20 years and uses MUGGER1955 as his Twitter handle today.

Big brother Randy Smith, meanwhile, was busy building a life on Wall Street. In the 1970s, he joined Bear, Stearns & Company as a trader. A decade later, according to the board chairman, the hands-on Smith quit after he was told to stop calling clients instead of leaving that duty to the firm’s sales reps.

In 1985, Smith started his own investment firm. From the start, R.D. Smith & Company had a distinct strategy: “profiting from other people’s misery,” as a 1991 New York Times article bluntly put it.

According to a 2011 profile of Smith’s son Caleb in Dallas-based D Magazine, Randall Smith raised his company’s start-up capital in an unusual way — with the winnings from a TV game show:

“Smith’s parents met while they were students at Cornell University. His mother, Kathryn, went on to earn a Ph.D. in political science. His father, Randy, got a job with Bear Stearns, where he launched its bankruptcy and distressed-debt division. In the late 1960s, the couple used their quick wits to win furniture and $20,000 in cash on the television game show Dream House. The money became the initial capital for an investment company Smith’s father launched from home, while still working at Bear Stearns. The whole family chipped in to help. By the time Caleb was 8 years old, he was making trades on a Quotron computer.”

As the new millennium dawned, Smith was poised to become the king of the vulture hedge fund and epitomize a new breed of investors that today are either admired or reviled the world over.

Eventually, the firm moved out of the house to Manhattan, where the offices of the R.D. Smith company were close to Wall Street, but “fittingly” overlooked the Trinity Church graveyard, the Times noted.

Smith stood out not only for brokering investments in floundering companies, but also for investing heavily himself. It didn’t always go over well with clients.

“So you just have to be careful that it isn’t something where it’s a conflict of interest,” one of Smith’s customers warned at the time. Such potential conflicts apparently interested the Securities and Exchange Commission when it investigated Smith in 1991.

In what may have been his first dabbling with the press, Smith was accused of unfairly trying to profit from a debt restructuring deal and forcing Community Newspapers into bankruptcy.

What the U.S. Senate Banking Committee ultimately noticed was Smith’s habit of sitting on creditors’ committees in bankruptcy cases and profiting from the inside information gleaned there. Though not necessarily illegal, the practice looked enough like insider trading that the senate committee’s chair wrote the SEC and asked for an investigation.

According to the Times, one Goldman Sachs partner who supported efforts to save the newspaper company from bankruptcy said Smith “can be a thorn in the side of people trying to do responsible things.”

In response, Smith quickly changed course and declared his firm would no longer sit on the creditors’ committees.

Clients complained that Smith prioritized his own investments over theirs, and soon the firm was laying off employees as investors took their business elsewhere.

Not long after the SEC started poking around, Smith stepped away from the company that bore his name. So that he could “focus on his own investments,” the Times reported, Smith agreed to leave the company in the hands of his tax attorney, John Adams, and a few close associates.

Nothing came of the SEC inquiries, and Smith moved on to reinvent himself. At one time, according to the Village Voice, a painting of a vulture was proudly hung in his firm’s lobby.

As the new millennium dawned, Smith was poised to become the king of the vulture hedge fund and epitomize a new breed of investors that today are either admired or reviled the world over.

Where Wall Street Meets Texas

Smith’s current wife, Barbara Stovall Smith, is active in both the Hamptons and West Palm Beach social scenes, where the couple own more luxury mansions than they can ever hope to occupy. At last count, the number of homes traced to them totaled 18, and that’s not counting the kids’ properties.

Barbara Smith is also a significant player in the family’s vast business interests. In the early 2000s, Barbara, along with Smith’s brother Jeffrey, got involved in the hospitality industry in Barbara’s native Houston, Texas.

The historic Sam Houston Hotel

The 10-story, 100-room Sam Houston Hotel was built in 1924 and is on the National Register of Historic Places. After acquiring it in 2002, the Smiths did an extensive remodel and by 2005 had renamed it the Alden Hotel — a name Smith would later adopt for his vulture firm.

According to one hotel executive, the thinking was that “Sam Houston” just sounded too Texan and the Smiths had dreams of taking an Alden Hotel chain national.

The Alden gained a reputation as a swanky, boutique destination. One reviewer wrote, “Owner and Houston native Barbara Stovall Smith wanted to create an atmosphere where Wall Street meets Texas, and that she did.”

But for unclear reasons, the family sold the hotel to a hospitality chain in 2010, and by 2012 it was again renamed the Sam Houston. As far as can be figured from public records, the Smiths’ dream of a vast Alden Hotel chain never bore fruit.

The Smith family’s real estate holdings in Texas are, like most of their investments, held under a number of companies, including Dallas-based Spire Realty, SDR Group Holdings and Springlake LP — along with a smattering of still more LLCs.

The family, specifically Randall and Barbara Smith and brother Jeffrey, also invested in Western oil fields, acquiring 71 percent of Inland Resources, which extracts oil and gas from the Monument Butte Field in northeastern Utah.

Back east, Barbara Smith is a popular figure around the Hamptons, where she and Randall own what has been described as a mega-mansion and where she’s frequently photographed at Long Island charity soirees. Their home base, though, is a seven-bedroom $20 million West Palm Beach residence the couple bought in 2004; it covers almost 16,000 square feet — and has anywhere from 8 to 12 bathrooms depending on which real estate site you believe. It’s where the Smiths are registered to vote and have given contributions to local as well as national Republican candidates.

Barbara Smith’s role in Randall’s business dealings has continued through the years. Texas Secretary of State records show she’s the president of the real estate holding company Shiva General Partner, Inc.

Shiva General Partner would later become key to tracing a maze of obscure companies the Smiths used to buy tens of millions worth of Florida real estate.

Who was behind the lavish purchases might have gone unnoticed if it weren’t for the digging of the local press.

Coming next week: Part 2, The rise (and myth) of Alden Global