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Anworth Mortgage, Your Greed Is Showing

This piece was originally posted on TheStreet Foundation Web site on May 21, 2014. 

NEW YORK (TheStreet) -- Heretical as it might sound to advocates who advise the retail investor, sometimes it's absurd to expect that average folks have the tools to make informed investment decisions. Consider a proxy battle that reaches a head at an annual meeting this week.

On Thursday, May 22, investors in the real estate investment trust Anworth Mortgage Asset Corp. (ANH - Get Report) will cast final votes to decide whether a group led by Arthur Lipson, a shareholder activist in Midvale, Utah, should take over the company's board of directors. Lipson said in a telephone interview Wednesday, May 21, that his Western Investment LLC has been involved in "close to forty" activist situations, and that his battle with Anworth has motivated the company to more than double its stock buyback program.

Anworth, with a market value of $681 million, is traded on The New York Stock Exchange and was down 3 cents to $5.30 by midday on May 21.

Data by YCharts

The battle comes with the usual pyrotechnics. Lipson says management has collected tens of millions in fees despite its "pathetic performance." Management says Lipson is engaged in "flamboyant rhetoric" that misleads Anworth investors. You've read this script before.

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Corporate governance outfits, in the meantime, have sided with the company. Institutional Shareholder Services, Glass Lewis and Egan-Jones all have advised that shareholders reject Lipson's proposals and stick with the crew that's already in charge.

Whoever wins, gathering the relevant information and making sense of it will be no walk in the park for befuddled investors, watching the shots and shells whizz by them.

A thorough vetting of the company's officials would take an investor from Anworth's standard filings with the Securities & Exchange Commission to a hodge-podge of regulatory documents that occasionally outline mishandling of investor money by stock brokers who worked for a brokerage firm controlled by the CEO. Lipson said he chose not to distract from his message about Anworth's finances by delving into its officer's related companies, but says that management is "spread too thin."

Principals at Anworth have their hands in a spaghetti bowl of other businesses that in some cases are under the same roof as the company's Santa Monica headquarters -- a brokerage firm and money management firm among them. It recently entered the single-family home business, and last year launched PIA Farmland Inc., a privately held real estate investment trust that invests in U.S. farmland properties leased to independent farm operators.

Anworth rents space from money management firm Pacific Income Advisers ($12 billion assets under management) and will pay $443,669 this year for 7,300 square feet on the second floor of Pacific's headquarters, according to Anworth's most recent annual report filed with the SEC. Want to guess who runs Pacific?

Lloyd McAdams

Joseph "Lloyd" McAdams, Jr., president and chief executive officer at Anworth. He's also chairman and chief investment officer for his landlord, Pacific. He and his wife Heather Una Baines are principal owners of Pacific through two trusts, the Lloyd McAdams Family Trust and the Heather U. Baines Family Trust.

Then there is Syndicated Capital Management. McAdams can just stroll down the hall of the same floor in the same building on Ocean Avenue when it's time to wear his hat as chairman of this brokerage.

Yes, he controls Syndicated, too, through trusts in his name and in the name of Baines, who is executive vice president of Anworth and president and chief executive officer of Pacific.

As fortune would have it, the Anworth board has designated Syndicated as the go-to broker whenever there's a stock buyback -- something in which Anworth has engaged with gusto of late.

When asked about regulatory problems at Syndicated and about the relationship between Anworth and the other McAdams interests, Anworth spokesman, Jonathan T. Keehner, declined to comment.

Anworth maps out its complicated relationships in filings with the SEC and Finra, the self-regulatory agency for brokerage firms, for investors who've got the time and patience to collect the far-flung documents. But it's a fair guess that most investors have little time at the end of their day jobs to assemble the puzzle pieces. In that respect, Anworth is a lot like too many other public companies whose information is spread hither and yon.

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