Corporate & Securities Law

2010: A Bad Year For Broker/Dealers

By Keith Griffin

Soured private-placement deals left dozens of broker/dealers in dire straits this past year, forcing many to close their doors entirely. As reported Jan. 2 by Investment News, the broker/dealer community has shrunk by 9% since 2005 to 4,619. Through November 2010, the number of broker/dealers registered with the Financial Industry Regulatory Authority (FINRA) was 101 below the total at the end of 2009.

The reasons behind the decline vary. Bad business practices over private placements tied to such firms as Medical Capital Holdings and Provident Royalties led several broker/dealers to bite the dust in 2010. Others closed down because of capital-requirement violations. And some went out of business due to soaring legal costs associated with investor lawsuits.

In March 2010, GunnAllen Financial, which at one time had 1,000 affiliated registered representatives, closed its doors because of net-capital violations. Several months later, Jesup & Lamont Securities Corp. followed suit.

Meanwhile, a slew of broker/dealers that allegedly sold private-placement offerings from the now-defunct firms of Medical Capital Holdings and Provident Royalties are the subject of class actions and arbitration complaints from investors. Okoboji Financial Services, a top seller of Provident Royalties? private placements, closed its doors last May.

One month later, Dallas-based Cullum & Burks Securities, a leading seller of private placements in Medical Capital Holdings, also shut down its business.

More failures and business closings of independent broker/dealers are predicted in 2011.

?It?s been a horrible market and firms are thinly capitalized,? said Larry Papike, president of Cross-Search, a recruiting firm specializing in independent representatives and executives at such firms, in the Investment News article.

Full post as published by Representing Investors on January 03, 2011 (boomark / email).