The SPDR Gold Trust (GLD) is by far the largest gold-backed Exchange Traded Fund (ETF) in the world, and is listed on NYSE Arca, as well as listed on the Tokyo, Hong Kong, Singapore and Mexican stock exchanges.
With 1275 tonnes of gold bars ‘claimed’ to be held in a secretive HSBC vault in London, England, GLD is not short of controversy as to its inner workings (e.g. GLD holds large amounts of gold bars at the Bank of England), but still, this ETF is surprisingly popular with well-known and sophisticated hedge fund investors who use GLD for exposure to the USD dollar gold price.
The GLD Golden Goose
All of this GLD popularity has been very lucrative for World Gold Council (WGC), the gold miners association, which through its fully owned US subsidiary World Gold Trust Services LLC, is the ‘Sponsor’ of the SPDR Gold Trust. In a nutshell an ETF sponsor is the creator of the ETF as well as being the central coordinating hub for the ETF’s management and administration.
As sponsor of the SPDR Gold Trust, the World Gold Council receives ‘sponsor fees’, primarily from GLD, which in its 2018 accounts amounted to a massive US$ 131.7 million, a figure which accounted for 96% of WGC’s revenues in 2018 and which made the WGC’s 2018 member dues for 2018 of $3.06 million pale into insignificance.
The World Gold Council receives such massive sponsor fees due to its sponsor fee being a staggering 0.40% of the Trust’s Net Asset value (NAV). Th GLD sponsor fee was slyly boosted from 0.15% to 0.40% in 2015 after the World Gold Council ran an aggressive and prolonged proxy consent solicitation campaign using proxy voting services Broadridge and D.F. King to bombard GLD’s retail shareholders for months on end until it gained 51% of the shareholder votes to amend the GLD Trust Indenture to 0.40%.
Revolving Door Syndrome
It is therefore strange and concerning, that for such a golden goose as the SPDR Gold Trust, the World Gold Councils sponsor, Manhattan based World Gold Trust Services whose offices are at 685 Third Avenue) is unable to retain its Chief Financial Officers (CFOs). This is because its CFOs never stay very long and constantly depart. And we’re talking major CFO turnover here. And one of the main tasks of the WGTS CFO is to prepare the SPDR Gold Trust quarterly and annual accounts as well as ensuring that everything about the administration and accounting of the SPDR Gold Trust is in compliance with applicable accounting conventions.
Four years ago this trend was highlighted in a BullionStar article titled “Execs flee GLD – The revolving door at the SPDR Gold Trust Sponsor”, but since then, the CFO exodus has continued. There have now been a staggering six (6) Chief Financial Officers of World Gold Trust Services since early 2014. These CFOs were:
- Robin Lee
- Adrian Pound
- Samantha McDonald
- Joseph R. Cavatoni
- Laura S. Melman
- Brandon Woods
Let’s start chronologically and work forward looking at SEC filings. As a listed security on the NYSE, GLD has to make regular filings with the Securities and Exchange Commission (SEC), and these are useful here for illustrating the revolving door CFO activity at the SPDR Gold Trust.
The Rule of Six
Towards the end of 2013, Robin Lee (CFO number 1) was CFO of the SPDR Gold Trust sponsor World Gold Trust Services (WGTS). Robin Lee signed off the SPDR Gold Trust accounts (10-Q) for Q4 2013 (filed on 7 February 2014) and then transitioned the CFO (and Treasurer) role to Adrian Pound (CFO number 2), who has joined WGTS in October 2013 and who signed off on the Q1 2014 SPDR Gold Trust accounts (filed on 9 May 2014).
Less than a year later, CFO Adrian Pound departed WGTS on 10 March 2015, and on the same day was replaced by Samantha McDonald as CFO (CFO number 3).
According to the March SEC Form 8-K (section 5.02 titled “Departure of Directors or Certain Officers” and “Appointment of Certain Officers”), a form which listed companies or listed securities are obliged to file for executive level personnel changes:
“On March 10, 2015, Adrian Pound resigned as Chief Financial Officer and Treasurer of World Gold Trust Services, LLC, or WGTS, the Sponsor of the SPDR® Gold Trust. His resignation did not arise from any disagreement on any matter relating to the operations, policies or practices of the SPDR® Gold Trust.
On March 10, 2015, the Board of Directors of WGTS appointed Samantha McDonald as the Chief Financial Officer of WGTS, with immediate effect.”
Samantha McDonald then resigned on 20 October 2017. In what must have been the surprise departure of McDonald, WGTS had to then appoint WGTS CEO Joseph R. Cavatoni as interim CFO (CFO number 4), and the SEC departure filing shows that WGTS was caught offguard as it sates that “a search has been initiated to identify a new Chief Financial Officer and Treasurer.”
“On October 20, 2017, Samantha McDonald resigned as Chief Financial Officer and Treasurer of World Gold Trust Services, LLC, or WGTS, the Sponsor of the SPDR® Gold Trust, effective November 30, 2017. Her resignation did not arise from any disagreement on any matter relating to the operations, policies or practices of the SPDR® Gold Trust.
On October 23, 2017, WGTS appointed Joseph R. Cavatoni, the Principal Executive Officer of WGTS, to also serve as interim Chief Financial Officer and Treasurer of WGTS, effective at the same time as Ms. McDonald’s resignation as Chief Financial Officer and Treasurer. A search has been initiated to identify a new Chief Financial Officer and Treasurer.”
Following this recruitment search, over four months later at the end of February 2018, WGTS then appointed Laura S. Melman (CFO number 5) as the next CFO (and Treasurer), and Joseph R. Cavatoni resigned as interim CFO and Treasurer.
8-K filing – 28 February 2018:
“On February 28, 2018, World Gold Trust Services, LLC, or WGTS, appointed Laura S. Melman as the Chief Financial Officer and Treasurer of WGTS, the Sponsor of the SPDR® Gold Trust.
Concurrently, Joseph R. Cavatoni resigned as the interim Chief Financial Officer and Treasurer, with immediate effect. His resignation did not arise from any disagreement on any matter relating to the operations, policies or practices of the SPDR® Gold Trust.”
Fast forward a year and a half to the end of September 2020, and what do we find? Well, you can guess by now. Laura Melman had, in the words of the SPDR Gold Trust filing, ‘ceased’ to be CFO, and was replaced by Brandon Woods (CFO number 6). The title “Chief Financial Officer and Treasurer” was also, during Melman’s tenure, changed to the title of “Principal Financial and Accounting“.
8-K Filing – 29 September 2019:
“On September 29, 2020, Laura Melman ceased to serve as Principal Financial and Accounting Officer of World Gold Trust Services, LLC, or WGTS, the Sponsor of the SPDR® Gold Trust. Her departure did not arise from any disagreement on any matter relating to the operations, policies or practices of the SPDR® Gold Trust.
On September 29, 2020, WGTS appointed Brandon Woods to serve as Principal Financial and Accounting Officer of WGTS, effective immediately.”
So incredibly, there have now been 6 CFOs of the GLD Sponsor in just over 6 years. Adrian Pound lasted less than a year and a half. Samantha McDonald stayed 2.5 years. Joseph Cavatoni, as the interim CFO was in place for about 5 months. Laura S. Melman lasted 1.5 years. And now the new entrant Brandon Woods has just appeared.
Surely this must be some sort of record? A constant in all of this CFO turnover is that according to the SEC filings of GLD sponsor WGTS, the CFO departures “did not arise from any disagreement on any matter relating to the operations, policies or practices of the SPDR Gold Trust.” But they would say that, wouldn’t they.
Alarm Bells – Red Flags
We all know instinctively that mass turnover by CFOs in a company is a potential warning sign that all may not be as it should be. And specialists in recruitment, sell-side analysts, and academics in human resources would also beg to differ with the GLD filings to the SEC, as the following quotes illustrate:
“It’s always the sign of some kind of failure if a high-ranking officer leaves their employer very soon," said Dan Dalton, director for the Institute for Corporate Governance at Indiana University." – Source
““It’s always intriguing when someone leaves after a short period, and raises big questions in shareholders’ minds,’ said Bryan Proctor, head of recruiting firm Korn/Ferry International’s financial officer practice." – Source
“‘If that seat becomes a rotating door, it creates uncertainty around culture, direction,’ said Scott Simmons, managing director with recruiting firm Crist|Kolder Associates." – Source
“CFO resignation is a greater predictor (than CEO resignation) of a future bankruptcy. … It may be because the CFO is more involved in the financial aspects of the company and, therefore, in a better position to identify the impending demise.” – Beams, Yan (University of New Orleans) and Huang (SUNY Old Westbury). – Source
“When I’ve studied firms that are charged by the SEC with financial misrepresentation, turnover of top managers or auditors is one of the triggers that attracts SEC attention," said Jonathan Karpoff, director of the CFO Forum at the University of Washington.
Generally speaking, Karpoff added, high turnover can warn of significant operational or financial reporting problems.
“A lot of times, the guy comes in and sees a bad situation, the best thing to do is jump ship," he said. – Source
Conclusion
One would think that being CFO of the world’s largest gold-backed ETF would be a prestigious and sought after role. But the recent position holders might beg to differ. So is it a question of WGTS culture, a lack of fit with the CEO, a question of boredom with the WGTS plush Third Avenue offices in Manhattan, or a shock at what is under the hood in the operations of the SPDF Gold Trust?
Take your pick, but as the quote from Karpoff above suggests, maybe the SEC should turn its attention to the SPDR Gold Trust, and ask the question why the CFO role at the NYSE listed ‘GLD’ is too hot to handle. The same would apply to all world’s largest hedge funds, which through their GLD due diligence, have an obligation to their investors to have the GLD’s CFO turnover on their radars.
The only entity which doesn’t seem to want to highlight this CFO issue is the World Gold Council, which remember, is practically bankrolled by SPDR Gold Trust sponsor fees.
About the author
Ronan Manly is an investment professional and research analyst with an interest in the monetary gold market. His career has taken him from Dublin to London, New York, and Frankfurt, in roles spanning portfolio management, stockbroking, and technology, working for companies including Dimensional Fund Advisors and Morgan Stanley. In his time, Ronan has collected various economic and finance degrees, most recently a Master's in Finance from London Business School.
Although curious about the commodity and precious metals markets since the early 2000s, Ronan's interest in the monetary gold market was piqued in 2011 by a visit to the Bank of England archives to research Ireland's historic gold reserves, wherein he realised that there were scores of interesting files on gold in the archives, which prompted a number of further archive visits and a lot of subsequent reading. This led to a fascination for monetary gold and for researching, analysing and writing about the gold market.
Ronan's belief is that an understanding of the historic gold market in the twentieth century is one of the keys to understanding the current and future gold market, since, while some aspects of the market have changed, behind the scenes a lot remains the same, despite central bankers claiming otherwise. Given that the monetary gold market is opaque and shrouded in secrecy, the challenge is to conduct research and find facts in order to try to put the pieces of the puzzle together.
In this BullionStar blog, Ronan will, amongst other things, attempt to shine a light on both long forgotten and contemporary aspects of the global monetary gold market by bringing original material to the attention of readers.