Finra shuts down GunnAllen

Embattled firm said to be in net capital violation after eleventh-hour effort failed to raise fresh funds

Mar 22, 2010 @ 9:17 am

By Bruce Kelly

Time has apparently run out for the crippled broker-dealer GunnAllen Financial Inc. and its 400 reps and advisers, as regulators informed GunnAllen late last week that the firm did not have enough capital to open for business this morning.

According to several sources with knowledge of the matter, the Financial Industry Regulatory Authority Inc. told GunnAllen it would be in a net capital violation as of Monday morning — if the firm did not receive an infusion of cash over the weekend.

David Levine, executive vice president at GunnAllen, confirmed that the firm had a net capital violation. Executives told employees they were losing their jobs this morning at the company's Tampa, Fla., headquarters.

The largest problem facing GunnAllen is the raft of lawsuits lodged against the firm. Investors are seeking as much as $50 million in damages, with many of those claims stemming from the activities of Frank Bluestein. Mr. Bluestein was a rogue broker who allegedly steered clients into a Ponzi scheme that eventually went bust in 2007.

GunnAllen, which bulked up on brokers in the last decade — and was one of the fastest growing firms of the era, with a significant but obscure operation in New York — is also facing client lawsuits over the sale of Provident Royalties LLC private placements.

Last week, Finra expelled the broker-dealer instrumental in marketing those deals, Provident Asset Management, for its role in a $475 million Ponzi scheme, the regulator said.

Finra's action does not mean that GunnAllen's client accounts were in any danger, sources said. GunnAllen's clearing firm, Ridge Clearing & Outsourcing Solutions Inc., will take over the accounts.

Mr. Levine stressed that customer accounts were safe at Ridge.

Herb Perone, a Finra spokesman, said the industry's self-regulator had no comment about the GunnAllen matter.

GunnAllen has faced serpentine and sometimes bizarre twists and turns of late, including serious questions about whether it had enough capital on hand to do business.

GunnAllen teetered on the edge of insolvency in December, when John Sykes, chairman and largest shareholder of the firm's holding company, GunnAllen Holdings Inc., abruptly resigned from the company's board.

Finra regulators scurried to the firm to comb its books, pronouncing the broker-dealer fit to remain open for business. Mr. Sykes then acquired a separate B-D, Pointe Capital Inc., from GunnAllen Holdings, saying he intended to focus on the wealth management business.

On Sunday afternoon, Mr. Sykes said that he could not respond to questions about GunnAllen.

Reps and advisers commenced leaving the firm as the broker-dealer searched for a new partner. At the end of January, Progressive Asset Management Inc. said it intended to acquire the firm.

It now appears that the bid failed to stave off the end for the once high-flying GunnAllen.


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