Financial World Magazine Collapses Under Gung-Ho Owner Barry Rupp

Barry Rupp, chairman of Financial World magazine, tries to meet adversity with a smile on his face. Even when he was being evicted from his office on June 15 for not paying rent, Mr. Rupp insisted things weren’t nearly as bad as they seemed. “Listen, I have a deal in the works and in a couple of days, I’ll have the money,” he told his landlord’s lawyer. “Just give me a few days.”

Meanwhile, his dazed staff watched in disbelief as a city marshal cleared the premises at 34th Street and Broadway. Not long afterward, the front doors of the nation’s oldest business magazine were chained shut. It was a profoundly surreal moment. Founded in 1902, Financial World made its name by exposing the crooked stock promoters who preyed on investors early in this century. But now the eternally optimistic Mr. Rupp and his once-venerated magazine have become a scandal story in their own right.

Financial World Partners L.L.C., Mr. Rupp’s publishing company, has been sued by a host of media consultants, paper companies and printers, all of whom allege they have been stiffed. Oxford Health Plans Inc. has filed a lawsuit accusing the company of failing to pay its employee health insurance premiums. Mr. Rupp has been personally sued by Seth Hoyt, his former president and publisher, who accuses him, among other things, of making “false and misleading … statements with the Audit Bureau of Circulation.” Finally, former employees have hired a lawyer to pursue a class action suit to recover unpaid back wages.

Financial World , which boasted 425,000 paid subscribers, hasn’t been published since its May issue. Yet Mr. Rupp, an ebullient former U.S. Marine captain who greets people with the salutation “Hey, big guy!” is as high-spirited as ever. In mid-July, he was working from an acquaintance’s office in Manhattan, trying to rustle up new financing. Once again, he claimed to be close to a deal that would resurrect the magazine. “We should have things put together by the middle of next week,” Mr. Rupp assured The Observer . “We have a great magazine. We’re coming back. We’ll be back stronger than ever.”

That would be a miracle. Mr. Rupp, 58, presents himself to the world as a supremely confident corporate chieftain, a seasoned entrepreneur who learned to chuckle in the face of danger on reconnaissance missions in Vietnam. But former Financial World employees, almost all of whom spoke on the condition of anonymity, tell a different story. Indeed, their descriptions of Mr. Rupp’s two and a half years at the helm make a fascinating cautionary tale for the magazine’s readers, who were the flattered subjects of the magazine’s slogan: “How the Rich Get Richer.”

Among the tips that might be gleaned from the tale are these: (1) Don’t make radical changes in your business without considering consequences; (2) make sure your investors won’t jump ship when the going gets rough; (3) pay your bills; and (4) don’t tell your employees that you are on the verge of a deal with deep-pocketed investors unless it’s really going to happen.

In other words, don’t do what Mr. Rupp did, according to his former employees.

“The magazine survived two world wars, the Great Depression, the panic of 1907, rip-roaring inflation and the civil unrest of the 60′s,” said a former Financial World executive. “But under Barry Rupp, we couldn’t survive the greatest bull market of all time.”

Former employees describe Mr. Rupp as “a country slicker,” a guy from Southern California with jug ears, a Midwestern twang and a coarse edge that seemed a product of his military stint. “He was sort of unique,” said Timothy Draper, managing director of Draper Fisher Jurvetson, a California venture capital fund and one of Mr. Rupp’s original partners in Financial World .

From Glass to Gloss

Mr. Rupp grew up in Ohio and settled in Southern California after serving in the Marines. He spent five years at Customweave Carpets Inc., a luxury carpet manufacturer. In 1983, he and two partners bought Stained Glass Overlay Inc., a franchise company that sells faux stained glass. It was through Stained Glass Overlay that Mr. Rupp made his first foray into the publishing world. In the mid-80′s, Mr. Rupp and his two partners were lunching with the editor of Entrepreneur magazine and learned that the periodical for small business owners was in bankruptcy.

Mr. Rupp and his partners, Peter Shea and Reinhold Pfahler, didn’t know a thing about publishing. But they were fans of Entrepreneur and thought they could spot a good opportunity. So they bought a controlling interest in the magazine in 1987.

What happened next is the subject of some disagreement. Mr. Rupp has said he was responsible for the blooming of Entrepreneur into the successful magazine it is today, with articles like “Whoops! What would you do if you spilled an entire can of cheese sauce on your shoes during a sales presentation?”

But others familiar with the magazine at that time said Mr. Rupp wasn’t there long enough to learn much about the publishing business. Mr. Shea would say only that he fired Mr. Rupp in July 1988. However, a lawyer for Mr. Shea and Mr. Pfahler told the Los Angeles Times that Mr. Rupp was “out there like a bull in a china shop.”

Mr. Rupp walked away from Entrepreneur with several million dollars, according to the same sources, and spent the next few years pursuing get-rich-quick schemes that never seemed to bear fruit. One was a plan to franchise small-city business magazines. Mr. Rupp conceded it never took off.

Mr. Rupp had more luck when he bought Financial World Partners in 1995 with his brother, Steve Rupp, a real estate investor, and one of his brother’s friends, Mr. Draper. Once again, he was dealing with a distressed magazine much like Entrepreneur had been nearly a decade earlier.

Carl H. Lindner Jr., the Cincinnati insurance and banking magnate, had purchased Financial World in 1983 and tried to bring it back to the forefront by pumping up its circulation to about 500,000 subscribers. In doing so, according to Mr. Draper, Mr. Lindner lost $90 million. Mr. Rupp and his partners were able to purchase the company for less than $1 million in cash, according to former employees. (A spokesman for Mr. Lindner declined to comment.)

Mr. Rupp made deep staff cuts, changed the publishing frequency from 24 to 15 times a year, and refocused the magazine to appeal to high-end investors instead of corporate heads. “I took over a very, very difficult magazine that hasn’t made money for years and was in the business magazine category and really should have been in the investment magazine category,” Mr. Rupp said.

Mr. Rupp persuaded his partners that he was a master of the magazine turnaround. “We were hoping he could work his magic,” Mr. Draper said. If nothing else, Mr. Rupp’s timing was right. Financial World was still breaking important stories and receiving considerable attention for its annual issue valuing professional sports franchises.

Many staff members greeted him as a savior. They even found his coarseness refreshing–although some were convinced that he didn’t know much about the publishing business.

Still, not everybody was seduced. “Barry would just walk around the place and make ridiculous comments,” said a former writer. “There was this one guy from St. Louis, real sweet guy. He was maybe 40 pounds overweight. Barry would say, ‘You fat piece of shit! When in the hell are you going to lose some weight, brother!’ ” He reportedly referred to his subordinates as “toads.”

For a while, it was easy to overlook such behavior. In Mr. Rupp’s first year, Financial World nearly broke even. But in 1997, the consequences of Mr. Rupp’s brash decisions became more clear. In a confidential memorandum prepared for potential investors, Financial World Partners admitted that the decision to slash the magazine’s frequency caused serious cash flow problems. The reason: Loyal readers had paid for 24 issues and were waiting before renewing their subscriptions.

Worse, Mr. Draper decided not to pump any more money into Financial World Partners. Mr. Rupp pleaded with him to change his mind, but Mr. Draper said he was put off by a slump in the magazine’s advertising revenue. “At that time, it just wasn’t the right thing to do,” Mr. Rupp lamented.

So Mr. Rupp adopted another cost-cutting strategy: He stopped paying bills. One of the first groups to suffer was the Boys & Girls Clubs of America. The organization was the designated beneficiary of the annual 1997 Financial World “CEO of the Year Award” celebration, a gala event honoring Philip Condit of the Boeing Company. But a Boys & Girls Club spokesman said the charity is still waiting for the nearly $50,000 it was promised by the magazine. (Mr. Rupp was unclear about whether the charity was stiffed, but he insisted it would eventually be paid.)

A Dun Deal

The Boys & Girls Club wasn’t alone. According to court records, Financial World Partners failed to pay several printers and paper companies. It allegedly stiffed a media consultant who provided Financial World Partners with a list of the potential affluent subscribers.

Mr. Rupp acknowledged that his company hadn’t paid many of its bills, but he declined to discuss specific allegations. He preferred to talk about how he would soon be in a position to pay off his debts and start publishing Financial World again. “People have been giving us a bad rap, but it really is a great magazine,” Mr. Rupp said. “The publishing industry doesn’t understand this magazine.”

When Mr. Rupp went out in search of new investors last year, he met with numerous bankers and publishers, including Mortimer Zuckerman. They understood that a financial magazine with 425,000 subscribers–by now a monthly–was far from a lost cause. But some reportedly were put off by Mr. Rupp’s manner. “On the second telephone call, he’d be saying, ‘Hey, tiger!’” recalled a hedge fund manager who considered investing. “I’d say, ‘Excuse me? What are you talking about?’”

Others said they thought twice after Mr. Rupp refused to give up control of his ailing company. “He scared a lot of people off with that,” an investment banker said. (Mr. Rupp denied he was so unreasonable.)

In June 1997, Mr. Rupp admitted Financial World was in trouble. But he insisted the dark days would soon be over. “You’d ask him how things were going and he’d say, ‘Never better!’” a former employee remembered. “‘Gonna have a deal next week!’”

Things only got worse. After June 1997, Financial World published two double issues. “You have my personal pledge that if you choose to renew [your subscriptions] and remain part of the Financial World family, we will deliver on our promise to improve our ability to help you make money on a regular monthly basis,” Mr. Rupp assured readers in last October’s issue.

Instead, former staff members said, the November issue–with a picture of burning money on the cover–was sent to newsstands but never to subscribers. But that was nothing compared to what happened with the next issue.

The December issue of Financial World was supposed to be its financial forecast issue. It predicted the stock market would continue its unprecedented surge in 1998. But, according to former staff members, the issue couldn’t be published because the printer hadn’t been paid. The issue had to be rewritten several times so it wouldn’t be outdated when it finally hit the newsstand. Eventually, Stephen Taub, the magazine’s editor in chief, reportedly refused to go through the charade. (Mr. Taub declined to talk to The Observer .)

Things only got more bizarre. Paychecks began to bounce and people quit in droves. Those who stayed didn’t have much to do. “The place was a shambles,” said Chris Nikolov, a former senior reporter in Financial World ‘s statistics department. “People would just come in to bullshit for a few hours and then go home.”

Unlucky Pierre

Mr. Rupp rallied his troops to publish a limited May issue honoring Sanford (Sandy) Weill, chairman of the Travelers Group Inc. and the magazine’s 1998 C.E.O. of the Year. At a lavish black-tie evening at the Pierre Hotel, Mr. Rupp carried on as if he hadn’t a care in the world. But one of the honoree’s sons noticed something was wrong. “There don’t seem to be as many people here this year,” Marc Weill said to a Financial World Partners executive.

Marc Weill was quietly informed of Financial World ‘s difficulties. “But don’t tell your father,” the executive told him. “I don’t want to ruin your father’s evening.”

The Travelers chairman reportedly had a great night. But once again, the charity that was supposed to benefit from the proceeds, the I Have A Dream Foundation, didn’t get paid the nearly $75,000 it was supposed to receive. “We’d like to remain optimistic that some payment will be forthcoming,” said Mark Maben, the charity’s director of communications. “The bottom line is they do owe us money.”

In April, Financial World ‘s publisher, Seth Hoyt, quit and filed a lawsuit accusing Mr. Rupp of failing to pay his commissions, business expenses and bonuses and “filing … false and misleading … statements with the Audit Bureau of Circulation.” Mr. Rupp denied the allegations. (Mr. Hoyt and the bureau declined to discuss them.) The same month, Financial World stopped paying its employees.

When a city marshal came to evict Financial World in June, the office was almost empty. Mr. Rupp tried to delay the eviction, saying he was close to a deal to refinance the company. But his landlord’s attorney refused. “We looked around the space and it was our opinion that Financial World was out of business,” said Michael Berman, a lawyer for Helmsley-Spear Inc.

What happened to the deal? Mr. Rupp said the eviction killed it. “Because the guy threw us out,” he lamented, “the landlord screwed up the deal.”

But he remains hopeful. He admitted he still owes former staff members money. But he claimed he has covered all his bounced paychecks and will continue to make good on his debts.

Not long ago, he called a former staff member and talked about putting out a special Wall Street issue in the fall.

“Barry, when am I going to get paid?” the former employee asked.

“Soon,” Mr. Rupp reportedly replied. “Could be next week.”

“Barry, I really need the money,” the former employee said.

Mr. Rupp reportedly replied, “We all need the money.”