Two small broker-dealers are down — and out

Two small broker-dealers with different business models, one for retail reps and the other a wholesaler of alternative and real estate funds, are closing their doors.

The former B-D, Taylor Capital Management, is potentially facing dozens if not hundreds of investor claims stemming from brokers’ sales of 1 Global Capital investments, a $280 million loan fraud. The wholesaler is Triloma Securities, a four-year-old firm that is not generating enough sales to stay open.

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The 1 Global fraud has decimated Taylor Capital, which last month filed its termination notice with the Financial Industry Regulatory Authority Inc., according to the firm’s BrokerCheck report.​

“We’re wiped out,” said Preston A. Spears, president and owner of Taylor Capital, which is based in Woodstock, Ga. “At the height, we had 75 reps, and all the reps have left. The arbitration claims filed against us are in excess of $50 million.”

“The firm has been in business for 10 years and never had a customer complaint for the first nine years,” Mr. Spears said.

Taylor’s freedom from regulatory problems ended when a small number of its reps sold 1 Global, the sale of which was not approved by the firm, he added.

“We had a couple reps who did an outside business activity, 1 Global,” he said. “Taylor Capital Management made no money from the transactions. I wish all the investors the best and hope they recover the money from the 1 Global bankruptcy.”

This month, Taylor Capital Management and a former adviser, James Heafner, lost a $1 million arbitration claim that alleged fraud related to five clients being sold 1 Global Capital investments, which were unregistered securities. The award included punitive damages of $400,000, with the arbitration panel citing “reckless disregard of high risk and reckless disregard of securities statutes by selling unregistered securities,” according to the award.​

“We thought this investment was secured,” said Mr. Heafner, who was barred by Finra from the securities industry over the summer for not showing up to testify in the investigation of an outside business activity, namely the sale of 1 Global Capital investments.

“I hate that my clients lost that money,” he said. “I’ve lost some money, as well.”

Kalju Nekvasil, the attorney for the clients who won the $1 million arbitration award, said it was “the first big claim involving 1 Global.”

He said he intends to pursue the claim even though Taylor Capital is going out of business by focusing on the firm’s errors and omissions insurance.

Triloma Securities

Meanwhile, Triloma Securities, based in Winter Park, Fla., will shut its doors by the end of the year, said Larry Goff, one of the firm’s owners. The firm had 14 wholesalers.

“Triloma Securities is shutting down, but the private equity, management side is still up and running,” said Mr. Goff, who has moved his Finra registration to another broker-dealer, International Assets Advisory, and will work as a retail wealth manager as well as potentially wholesaling real estate investments in the future.

The costs of running a broker-dealer undercut Triloma’s ability to remain open, he said. “There is just not enough business for us to stay open. We still have a couple deals but it’s not enough business to keep the team.”

Related Topics: Financial Industry Regulatory Authority