Syms is an eerily quiet department store housed in an ugly white building that crouches low on Trinity Place. Most of its windows are bricked up. Its outlandishly nice staff, “educators” in Syms parlance, tend to row after row of neatly hung blazers and pantsuits.
Now and again, in the otherwise silent shop, the disembodied voice of a man calling himself Richard Syms makes an announcement about gift cards. It’s unclear to whom the announcement is directed. The store, at 5 on a Saturday afternoon, is nearly deserted.
Syms, the off-market chain known for its black paper bags proclaiming “An educated consumer is our best customer,” purports to be a retailer. Others, including some of the chain’s shareholders, suspect Syms is actually a real estate firm masquerading as a retailer, with secret plans to erect a tall building where its squat shop now stands in the heart of the Financial District.
They allege that the Syms family, which owns 57 percent of the firm, is hiding its plans in order to depress the stock price. That way, the family can buy back more of the 49-year-old company and, after erecting the tower, reap more of the dividends.
On the face of it, the suspicions reek of the worst kind of conspiracy theory. But these shareholders aren’t pulling their ideas from the ether—they’re basing their suspicions on a series of transactions that began at the tail end of last year and that have only recently been revealed. As the Syms chain of retail outlets shrinks (from 48 locations in 2000 to 33 today), Syms has been quietly buying up property and air rights around its Financial District store. Emphasis on quietly.
THE RUMBLE BETWEEN shareholders and the Syms family began in earnest on Dec. 21, 2007, when the Syms board of directors, which the family controls, announced it would delist from the New York Stock Exchange, ostensibly to save the more than $750,000 it spends annually complying with the Security and Exchange Commission regulations that govern the exchange.
“I was very upset by that,” said Thomas Kahn of Kahn Brothers & Company, an investor. “These [S.E.C.] rules and regulations were made to protect shareholders.”
On the New York Stock Exchange, companies must issue one annual report and three quarterly reports a year and report any material information in the interim. The Syms board of directors said that it would instead trade on the Pink Sheets, which aren’t subject to as many disclosure requirements. Following the news, Syms shares dropped 8 percent, according to RiskMetrics Group, a financial risk management consultant. By Jan. 8, share prices had dropped 27 percent.
Insurgent shareholders rebelled. Led by the Esopus Creek investors and Barington hedge funds, investors cited an S.E.C. regulation that forbids a company from delisting from the N.Y.S.E. if it has more than 300 registered shareholders. Esopus also filed a lawsuit. Syms, in a Feb. 12 release, conceded defeat and announced it would register with Nasdaq, which has strong disclosure requirements.
“What Syms did is very unusual, particularly in the context of a controlling shareholder,” said Steven Davidoff, an assistant law professor at Wayne State University Law School, and “the Deal Professor” for The New York Times. “They would have deprived minority shareholders of the benefits of security law.”
“The goal is to be listed—as an investor, you clearly want to be traded on the public exchange,” said Charles Elson, the chair of the University of Delaware’s Weinberg Center for Corporate Governance.
Had Syms succeeded in making the permanent transition to the Pink Sheets, it’s possible that investors would never have discovered that the Syms real estate footprint in New York City has been expanding.
The first blockbuster disclosure arrived in the April 25 annual report, in which Syms revealed that it had purchased 16,500 square feet of air rights from 44 Trinity Place, the building next to its flagship at 42 Trinity Place, for $3.1 million. The agreement was signed on Dec. 28—a week after the firm announced it would delist from the N.Y.S.E.
The under-the-radar disclosure served only to bolster shareholders’ suspicions: Why didn’t Syms make a more public announcement to pump up the share price? Did the family want to keep the stock prices low so they could buy them back?
The news kept trickling out. On May 23, Syms disclosed that the day before, it had purchased 67 Greenwich Street, also adjacent to the company store, for about $8 million. “Although the Company does not have any plans to develop the site, it believed it prudent to complete the purchase in order to protect its property at 42 Trinity Place from encroachment,” said Philip Piscopo, vice president and chief financial officer, in a statement.
Shareholders were astounded. Encroachment from what? The store, nearly all of its windows boarded up, had no need to protect its light and air. And development on either side of the building could only help the store by ushering in foot traffic.
On June 9, Andrew Sole and Joseph Criscione, managing members of Esopus, which owns nearly 4 percent of Syms, sent a letter to its board of directors blasting its “consistent and continuing lack of disclosure in its public filings. … [W]hile the Company omits this material information from its regulatory filings, it continues to entice minority shareholders to sell shares back to the Company through the maintenance of an active share repurchase program.” The two managers also claimed that Syms had “understated its owned real estate assets [nationwide] by a whopping 33%.”