Garp on the block for $3

The Global Association of Risk Professionals (Garp) may finally become a democratic not-for-profit entity should advanced negotiations between David Shimko, president of consultancy Risk Capital Management Markets, and Garp’s founders, Lev Borodovsky and Marc Lore, produce an agreement.

At the end of February, Shimko confirmed he had signed letters of intent with both Borodovsky and Lore to hand over Garp and all its assets for a nominal price of $3. He expected to close the deal within a fortnight. Shimko has already established an interim board comprising: Robert Jarrow, a professor of investment management at the Johnson Graduate School of Business at Cornell University; Peter Tufano, a professor of financial management at the Harvard Business School; Donald van Deventer, president of Kamakura; and Charles Smithson, a partner at Rutter Associates.

At first sight, the move looked like an attempted takeover by Honolulu-based risk management services company Kamakura. Van Deventer, Shimko and Jarrow are all Kamakura directors. Shimko denied this, saying: “Yes we have all worked together and know each other... the interim board was needed at short notice to make decisions quickly. [But] Garp will be run by an elected board.”

Early talk that Shimko and his backers planned to create a two-tiered Garp – a for-profit entity running events and financial risk management (FRM) exams and a not-for-profit association – did not endear disgruntled Garp and ex-Garp members. When Shimko approached the breakaway Professional Risk Managers’ International Association (PRMIA) in mid-February proposing its members rejoin Garp, which would then be serviced by his for-profit entity exclusively for five years, the proposal was unanimously rejected.

Shimko said he has now dismissed the two-tiered concept. “No-one [on the interim board] will profit from this. There will be no compensation and no ownership,” he said at the end of last month. “Garp will be fully not-for-profit, and we see our role as very interim. Garp will be purely owned by its members.”

Shimko added that he had reached agreement to pay-off Marc Lore’s father Peter for internet development work. Peter Lore was seeking payment of between $100,000 and $750,000 during previous Garp takeover negotiations. Shimko declined to provide the settlement figure, saying only it was on the “smaller side”. It is also unclear if Lore and Borodovsky’s previous ‘tax bill’ demands for $200,000, according to one insider, will be paid out of Garp assets as well. Shimko said only payments on past loans to Lore and Borodovsky would be paid.

The $3 price tag likely includes the assets of UK conference company Demco, Carli – a Delaware company owned by Borodovsky and Lore’s wives that used to own rights to the FRM exam – and Garp Inc. It is unclear how these entities will be reverse-engineered into a member-owned association.

Shimko said the interim board’s immediate priority was to boost Garp’s global reach and re-establish the conference and FRM exam schedule. The board named René Stulz, Everett D Reese chair of banking and monetary economics at Ohio State University and former editor of the Journal of Finance, as head of the FRM exam committee. FRM exams should start in November. Rebecca Pieri, formerly Garp’s London-based publishing director, has taken on the chief executive role of Garp’s conferences secretariat on an interim basis.

But a Shimko-led Garp will find it difficult to lure back members without providing full transparency and disclosure on the takeover. “People are not long on trust, they are long on disclosure,” said David Keonig, a former Garp Midwest director and a leading force behind PRMIA.

Koenig added that PRMIA would continue to develop. “PRMIA is not considering coming back [to Garp].” The body has signed up 1,000 members since launching in January and received another 1,000 enquiries about events. It now has 25 chapters, including former Garp chapters for Houston and Seattle. Before its spate of problems, Garp had more than 16,000 members and 37 regional chapters.