The past year has been a rocky roller coaster ride for many broker/dealers, as the fallout from soured private-placement deals in Medical Capital Holdings, Provident Royalties and DBSI Inc. caused more than 50 broker/dealers that sold those products to close up shop.
According to findings in a new report by the Compliance Department consulting group, 93 broker/dealers closed their doors during the first three months of 2012, while 137 B-Ds shut down in the first quarter of 2011. Meanwhile, fewer new B-Ds are opening. Forty-four new broker/dealers opened in the first quarter of 2012, compared to 57 for the same time period in 2011.
As reported May 1 by Investment News, the Financial Industry Regulatory Authority (FINRA) shows 4,428 broker/dealers were open in March, compared to 5,005 in 2007. That’s an 11% decline over five years.
Many of the problems facing broker/dealers are the result of legal and regulatory issues over private-placement investments involving Medical Capital Holdings and Provident Royalties, as well as tenant-in-common exchanges manufactured by DBSI.
In July 2009, the Securities and Exchange Commission (SEC) charged both Medical Capital and Provident Royalties with fraud. On Nov. 8, 2010, DBSI filed for bankruptcy. Since then, many investors have filed arbitration claims with FINRA against the broker/dealers that sold them the failed products.
More recently, sales of private placements were responsible for the shuttering of broker/dealer Cambridge Legacy Securities LLC. On April 13, after losing a $1.5 million arbitration claim in March, Cambridge Legacy Securities filed its withdrawal request with FINRA. A few days later, the firm sought bankruptcy protection.