Peeved members of investing club turn on leaders

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A decade ago, BetterInvesting was soaring like a hot stock. Investing clubs it organized around the country to teach stock picking claimed more than 500,000 members. The elderly members of its most famous club, the "Beardstown Ladies," were minor celebrities.

But training thousands of energetic amateurs to dissect the finances of public companies, it turns out, can be a dangerous business. When some members and employees of the 55-year-old nonprofit group began reading the fine print of its own financial statements, they didn't like what they saw.

BetterInvesting was paying to lease a Cadillac Escalade for its chief executive, Richard Holthaus, who took over in 2002. It was paying for his membership in the Indianwood Golf and Country Club in Lake Orion, Mich. It was sending business to Mr. Holthaus's former employer, public-relations company Fleishman-Hillard Inc. Employees contacted federal authorities, triggering an inquiry into the group, formerly known as the National Association of Investors Corp., or NAIC.

Since then, some of BetterInvesting's senior-citizen volunteers have been on the warpath about management. Internet message boards have lit up with criticism. One meeting of volunteers last year ended in tears. Total membership has plunged. The organization's 13,100 or so clubs now count about 132,000 members, a decline of more than 70 percent since the late 1990s.

"It's gone far beyond the typical disgruntlement" about how an organization is run, says Ellis Traub, a longtime BetterInvesting member and volunteer. The leadership controversy and the shrinking membership ranks have left members miffed, he says.

Mr. Holthaus, 59 years old, a former investor-relations executive at Fleishman-Hillard, says he aims to boost BetterInvesting's membership to one million by the end of the decade. He has arranged for the organization to participate in a popular series of investment conferences. BetterInvesting clubs are taking part in televised segments about investment clubs on ABC's "Good Morning America." He notes that BetterInvesting no longer pays for his Cadillac and his golf-club membership.

"People deeply and sincerely feel that my efforts have knocked them out of their comfort zone," he says of his critics. "I've always been a change agent."

Many members of the board of trustees that oversees the organization are standing behind him. "If you don't like the things he's doing, maybe you need to find a new organization," says trustee Kenneth Lightcap. "You can't have the inmates running the asylum."

BetterInvesting was founded in 1951 as the National Association of Investment Clubs. It is an umbrella organization for investment clubs that aims to teach members to pick stocks wisely. (It adopted its current name in 2005.) The organization, based in Madison Heights, Mich., provides the clubs and individual members with educational resources and with material for assessing stocks, including computer software which it sells to them. The clubs themselves serve as forums for members to swap ideas. They pay dues to the parent organization. Membership peaked at about 540,000 during the dot-com boom.

One of the clubs, the Beardstown Ladies, was founded in a church basement in Beardstown, Ill. It gained fame with its claim that the club's stock portfolio posted an average annual return of 23.4 percent over 10 years. That record spawned books and speaking tours. But in 1998 came word that the club had calculated its annual returns incorrectly -- they were closer to 10 percent.

That embarrassment marked the beginning of BetterInvesting's troubles. The dot-com bust sent many members looking for other hobbies. Mr. Holthaus, a longtime BetterInvesting member, became chief executive and president in 2002. In 2004, his compensation totaled nearly $400,000, including the car lease and the country-club membership.

In July 2004, BetterInvesting, then still known as the NAIC, received a letter from the Senate Committee on Finance indicating that it had received "troubling reports" from several unnamed sources. "These reports have raised questions regarding the organization's governance practices and the amount of NAIC funds that are being used to fulfill the organization's purpose," the letter said. An inquiry began, part of a broader look into nonprofits that was already under way.

More controversy followed. Trustee Ralph Seger, now 85, questioned the organization's decision to spend about $1 million developing a public-television show that eventually aired in more than 30 cities. His complaints, Mr. Seger said, cost him his position on the board of trustees. He subsequently sued BetterInvesting in a court in Michigan, claiming that he was improperly removed. BetterInvesting says Mr. Seger's removal was handled appropriately. Mr. Seger lost his case, but is appealing.

In June 2005, Mr. Holthaus and Mr. Lightcap, the trustee, attended the meeting of an advisory group charged with planning a big conference. Mr. Lightcap criticized the efforts of the advisory group, which was made up of volunteers, and suggested disbanding it, which left some advisers in tears.

"Where I come from, unless a ring is involved, gentlemen don't make ladies cry," the advisory panel's chairman at the time, Hugh McManus, later wrote to Mr. Lightcap.

Mr. Lightcap, 68, says he knows his comments "upset a few people," but "for those who got upset, that's OK. We're trying to change this organization."

Last May, the Senate finance committee informed BetterInvesting by letter that it had found "troubling" compensation and conflict-of-interest issues at the organization. It cited bills of close to $200,000 paid in 2004 to Mr. Holthaus's former firm, Fleishman-Hillard, which the committee said was a large increase over prior expenditures of that nature. The committee said it had forwarded its findings to the Securities and Exchange Commission and the Internal Revenue Service.

BetterInvesting says Mr. Holthaus's compensation is in line with the heads of comparable nonprofit groups, and that it is no longer working with his former employer. Fleishman-Hillard says its 2004 billings were for improving the organization's Web site and for public-relations assistance in connection with the Senate inquiry.

Last year, Donald Spindel and a few of his fellow trustees discussed whether to ask Mr. Holthaus and then-chairman Kenneth Janke to step down. The group did not agree on a course of action, and Mr. Spindel resigned from the board.

Last summer, unhappy with management, 22 of 27 members resigned from a BetterInvesting advisory group set up to make recommendations about computer issues. They formed their own group to sponsor an investment conference this summer. Herbert Barnett, a former chairman of the advisory group, lashed out in a letter posted on an Internet message board at what he called the "petty despots" in charge of BetterInvesting. "We have too many of the wrong people in the wrong jobs at the wrong time," he wrote.

In the fall, BetterInvesting's co-founder, Thomas O'Hara, 91, retired from the board of trustees, along with another veteran trustee. Mr. Holthaus took over as chairman, succeeding Mr. Janke, 72, who's been with BetterInvesting for nearly a half century.

Mr. Holthaus says he is troubled by the exodus of volunteers. "These are people who I've known for years," he says.

To reverse the membership decline, BetterInvesting has been trying to reach a new generation of investors. It received one grant to provide investment education to high schools, and another to make educational materials available online to public-school employees.

Late last year, as a meeting of a New York chapter broke up, one of the organizers made a request of the mostly gray-haired attendees. Next time, he said, "bring the teenagers."



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