Defunct WJB Capital and two execs hid company's financial distress for years, Finra says

WJB Capital Group Inc. and two of its top executives settled allegations that it masked the firm's financial difficulties and traded securities without sufficient capital during the two years before it shuttered its doors in January.
FEB 08, 2014
WJB Capital Group Inc. and two of its top executives settled allegations that it masked the firm's financial difficulties and traded securities without sufficient capital during the two years before it shuttered its doors in January, according to industry regulators. The Financial Industry Regulatory Authority Inc. said the firm, and specifically chief executive Craig Rothfeld and chief financial officer Gregory Maleski, misstated the firm's balance sheet and net-capital calculations. The firm, which had trading desks in New York, Boston, Denver and San Francisco, had about 100 employees when it closed, Finra said. “Both WJB's CEO and CFO hid the precarious financial condition of the firm, misstating the FOCUS reports and net-capital calculations by as much as $4.4 million per month over a two-year period,” Brad Bennett, Finra's chief of enforcement, said in a statement. “The firm's supervision and accounting were seriously flawed.” The firm and executives misstated WJB Capital's balance sheet and other records by improperly treating nearly $10 million in compensation that was paid to 28 employees as “forgivable loans,” Finra said. WJB Capital's balance sheet during its last three years “would have reflected substantial losses in addition to those that it was already experiencing,” if finances were correctly accounted for, the Finra consent agreement said. Under the terms of the Finra deal, the firm was expelled, and Mr. Rothfeld was barred, from the securities industry, and Mr. Maleski was barred from acting in a principal capacity. They neither admitted nor denied the allegations. Tom McCabe, a New York attorney who represents the defunct firm and its two former executives, had no comment on the settlement. A second attorney, George Brunelle of Brunelle & Hadjikow PC, did not return a call seeking comment. WJB Capital and the two executives also falsely misclassified certain items as allowable for net-capital purposes, including $1.6 million in funds from providing “non-deal roadshows” and third-party research, and a $1.5 million loan the firm received from its clearing firm, Finra said. As a result, the firm traded in securities when it was below its minimum required net capital. The Securities and Exchange Commission requires brokerages to maintain a certain level of net capital to ensure it has enough liquidity to protect customer assets and satisfy debt to other broker dealers. WJB Capital suffered from an industry slowdown in trading, a shortage of capital and high interest rates on some of its debts, according to a Bloomberg News report when the firm voluntarily shut down. Founded in 1993, the firm had been known until 2008 as W.J. Bonfanti Inc., named after co-founder William J. Bonfanti

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