Pied Piper of Wall Street

Although Cortes Wesley Randell, 34, liked to say that he "wouldn't consider hiring anyone over 30," the founder of the National Student Marketing Corp. was hardly a hirsute radical himself. In five years, he worked himself up to a Lear Jet and a $600,000 Virginia horse-country estate by tapping the youth market and using its glamour to make money on the stock market. Then the paper profits suddenly vanished. Last week N.S.M. stock had sunk to $3 from December's high of $72, the Securities and Exchange Commission was looking into insider dealings, and some blue-chip Wall Street firms that had been involved were blushing pink.

Cortes Finds Gold. The smooth-talking son of a financial consultant to Latin American governments, Randell started his company in 1964 by publishing a summer-employment guide for students. Working from a base in Washington, D.C., he built up a network of 700 campus representatives to sell magazine subscriptions. By 1966, Randell had gone mod and was promoting computer-matched dating and half-fare cards for American Airlines. Other gimmicks that he and his campus representatives pushed included the outrageous and the plain corny: a pillow for sit-in demonstrators featuring a pocket containing No Doz pills to keep the user awake, a poster showing the Gothic splendors of Notre Dame above the line "Gargoyle with Listerine."

Next, the conquistador of the campus decided to turn his company into a conglomerate, the first U.S. corporate giant based entirely on the purchasing power of youth. "We find ourselves in situations similar to Carnegie and Sloan," Randell intoned. With the old-line firm of Auchincloss, Parker & Redpath managing the underwriting syndicate, N.S.M. went public in 1968 at $6 a share. In two years of frantic stock swapping and cash deals, Randell acquired 27 companies (a student-insurance concern, a poster maker, the publishers of Europe on $5 a Day). N.S.M. sales reached $68 million last year.

The stock rocketed; traded over the counter, it hit $52 before splitting two for one. Buyers have included Morgan Guaranty, Continental Illinois National Bank, and the endowment funds of Harvard and Cornell. Gerald Tsai's Manhattan Fund bought 122,000 shares last October at an average $41 per share. When Wall Street was thirsting for a growth stock, Randell provided it.

During his acquisition drive, Wall Street houses were given as finder's fees a good deal of N.S.M. letter stock (an issue not registered with the SEC and thus not readily marketable). Kidder, Peabody put out a 17-page report forecasting "significant growth" for N.S.M. and got 4,000 shares from the company just nine days later for helping to arrange a merger. By last December, the writing was on the wall if not yet in the annual report. But Wall Street was still impressed; Bear, Stearns & Co. quarreled with an article in Barron's, which noted that without the profits of its acquisitions, N.S.M. would have had none of its own.

Lofty Predictions. Insiders had already begun selling off. In mid-December, the company and 16 of its officers and shareholders sold 316,585 shares of letter stock at about $43 to banks, mutual funds and insurance companies. Randell made a number of sales of his shares. Over the objections of his top aides, Randell continued to play the Pied Piper through January, predicting to securities salesmen across the country that N.S.M. sales would nearly double in 1970 and that profits would rise from 11-c- to $2 a share.

Far from making a profit, the company lost $859,889 during this year's first quarter. Official explanation: "a mechanical error" in shifting figures from one set of books to another had cut sales by more than $4,000,000. In addition, campus representatives were deluged with more posters and samples than they could tack up or give out; many items were simply dumped.

Randell left N.S.M. under pressure in February. The new president, Roger W. Walther, 34, is reorganizing and changing the auditing practices. The headquarters staff has been cut from 160 to 18 in an effort to stop the slide. With whatever he managed to save from the debacle, Randell and his wife have withdrawn to his mock-Tudor Virginia estate. "You can't take anything for granted," says he, "even success."

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