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Another Broker/Dealer Goes Out Of Business

Weighed down by sales in Medical Capital Holdings and other failed private placement deals, more broker/dealers are closing their doors. At least nine B-Ds have gone out of business this year.

In 2005, 5,111 broker-dealers were registered with the Financial Industry Regulatory Authority (FINRA); today, the number of firms has declined by 8.2% to 4,693.

A number of reasons are behind the recent broker/dealer closures, including the current economy, as well as regulatory pressure from FINRA and the Securities and Exchange Commission (SEC). For many of the recently shuttered brokerages, however, their fate has been sealed by sales in Medical Capital Holdings.

In July 2009, the SEC charged Medical Capital with fraud in connection to the sale of private placements. In total, the Tustin, California, lender raised $2.2 billion in investor money and sold private placements known as Medical Capital notes through dozens of broker/dealers. More than half of investors’ money is now gone.

Chicago Investment Group, a broker/dealer with approximately 90 brokers and $200 million in client assets, is the latest broker/dealer set to close its doors. As reported June 29 by Investment News, the company revealed last week it did not have enough capital on hand to meet industry rules to remain open for business.

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