End of the line for Rodman & Renshaw?

Broker-dealer short on cash, falls short of net-capital rules

Sep 13, 2012 @ 1:09 pm

By Bruce Kelly

SEC, Finra, broker-dealer
+ Zoom

Rodman & Renshaw LLC, once a leading investment bank for small, emerging-growth companies, has run short of capital and could shut down.

In a regulatory filing yesterday, the broker-dealer informed the Financial Industry Regulatory Authority Inc. that it is no longer in compliance with the Securities and Exchange Commission's net-capital rules.

Falling under regulatory-net-capital levels is typically a broker-dealer's death knell, although on rare occasions, firms manage to bounce back and remain open.

In the SEC filing, Rodman & Renshaw's parent company, Direct Markets Holdings Corp., said the broker-dealer “would cease conducting its securities business, other than liquidating transactions, unless and until it can achieve compliance” with net-capital rules.

The broker-dealer is considering terminating its license by filing a Form BDW, or broker-dealer withdrawal form, with Finra, according to the filing. It also is considering selling certain assets.

Executives with New York-based Rodman & Renshaw, including chief executive Edward Rubin, did not return calls seeking comment.

Broker-dealers of all stripes have been struggling to maintain net-capital reserves since the financial crisis of 2008, with hundreds failing or simply shutting down since then. Firms must have a minimum amount of cash on hand to remain open for business, and many simply have failed to do so.

Over the past five years, Finra has reported a 12% decline in the number of broker-dealers, with 4,370 up and running in August versus 5,005 at the end of 2007.

Rodman & Renshaw has suffered pronounced turmoil over the past few months.

In May, the parent company changed its name to Direct Markets Holdings Corp. from Rodman & Renshaw Capital Group Inc., signaling a shift in focus to its Direct Markets platform, which links small public companies making secondary offerings with investors.

Despite the shift, the company's stock price failed to recover from a year-long slide. On Thursday morning, shares were trading at a little more than 8 cents, compared with $1.28 a year ago.

Last month, Finra fined the broker-dealer $315,000 for “supervisory and other violations related to the interaction between the firm's research and investment banking functions.”

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