Burdened by legal costs, JRL Capital Corp., a small broker-dealer based in Irvine, California, filed for Chapter 7 bankruptcy on May 2 in U.S. Bankruptcy Court for the Central District of California, reporting total assets of $43,000 and total investor claims against the firm of $2.5 million.
While no reason for the 15 investor claims against the broker-dealer is given in the bankruptcy court filings, JRL Capital and other broker-dealers were contacted last year by the Securities and Exchange Commission about offering clients bonds issued by GWG Holdings, according to the firm's most recent audited financial statement filed in March with the SEC.
JRL Capital generated $1.8 million in total revenue in 2021 and half that amount last year, according to court papers. Its advisory business reported $194.5 million in client assets.
GWG Holdings, which sold $1.6 billion in bonds backed by life settlements through a network of independent broker-dealers and registered reps, filed for Chapter 11 bankruptcy protection in April 2022. Just last week, a broker in Philadelphia lost an industry arbitration claim of $43,645 to a client related to sales of GWG Holdings Inc. L Bonds.
Small broker-dealers like JRL Capital are susceptible to problems when products, particularly high-risk, high-commission alternative investments, go sideways. It's not clear to what extent JRL Capital had errors and omissions insurance against investor claims.
"How many other firm bankruptcies will follow?" asked Kal Nekvasil, a plaintiff's attorney who represents investors who bought GWG bonds.
Larry Law, CEO of JRL Capital, did not return calls Tuesday or Wednesday to comment.
"This action was taken as a series of pending arbitrations filed against the firm had an aggregate liability, assuming the arbitrations were successful in their claims, that would cause the firm to be insolvent," the firm reported on its BrokerCheck profile.
JRL Capital's management believed it would successfully defend the claims, but the legal costs outweighed the firm's ability to fund such a fight, according to BrokerCheck.
The firm filed its termination notification with the Financial Industry Regulatory Authority Inc. the day after it filed for bankruptcy, according to its BrokerCheck profile.
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