Soured investments in real estate deals and private placements involving Medical Capital and Provident Royalties have caused a number of broker/dealers to go belly up this year. Closures of broker/dealers, in fact, are outpacing new entrants into the market. Between May 2010 and May 2011, a total of 336 broker/dealers notified the Financial Industry Regulatory Authority (FINRA) that they were closing their doors for business. By comparison, 190 new B-Ds came on board.
And there appears to be more bad news ahead. As reported June 23 by Investment News, the Compliance Department predicts that the broker/dealer industry could see an 11% net loss of broker/dealers by 2014.
The dwindling number of broker/dealers came to a head this year, highlighted by the failures of such names as GunnAllen Financial, QA3 Financial Corporation and Jesup & Lamont Securities.
Other well known B-Ds like Securities America also have come under fire because of legal troubles connected to private-placement sales in Medical Capital Holdings and Provident Royalties. Both companies were charged with fraud by the Securities and Exchange Commission (SEC) in July 2009.
Most recently, California-based MCL Financial Group filed its broker/dealer withdrawal form with FINRA. Last year, the receiver for bankrupt real estate syndicator DBSI sued MCL in an attempt to recover commissions generated from sales of tenant-in-common exchanges (TICs). According to court documents, MCL collected $210,000 in commissions from selling TICs issued by DBSI.
Earlier this month, WFP Securities of San Diego, California, also notified FINRA of its plans to shutter. WFP is facing more than $14 million in legal claims, after having sold more than $27 million of private placements issued by Medical Capital Holdings and $6.8 million issued by Provident Royalties.