Indie B-D warns reps of dire finances

Hammered by exposure to a risky type of mortgage-backed security, Brookstreet Securities Corp. of Irvine, Calif., yesterday told its 500 or so affiliated reps and advisers that "disaster" had struck, and that the firm could close if it doesn't come up with at least $5 million. And in an unsigned e-mail note to its advisers, the firm blamed its clearing firm, National Financial Services, and too many accounts on margin for its poor fortune. "Today, the pricing system used by National Financial has reduced values in all Collateralized Mortgage Obligation," the e-mail said. "Many of those accounts were on margin and suffered horrendous markdowns and unrealized as well as realized losses." National Financial and the regulators expect Brookstreet to pay for realized liquidated losses and take a capital charge for unrealized (mark) to market losses. " The e-mail continued, "It would take a capital infusion of at least $5,000,000 to keep the company in compliance with no additional guarantee that additional markdowns will no be forthcoming." Brookstreet Securities is a mid-sized, independent-contractor broker-dealer, and in 2006 generated about $70 million in gross revenue, according to one industry observer who asked not to be named. According to NASD records, the Brooks Family Trust owns more than 75% of the firm, with Stanley Brooks the trustee. Although the message was unsigned, it contained a personal message to each adviser, potentially from Mr. Brooks. "I have told many of you that you are always in danger of not being paid on your last check when working for any broker-dealer. I will try to get enough money from our account at NFS to complete our upcoming payrolls." The note concluded with a plea: "All our family net worth is in the firm, please give me time to present a new plan." Mr. Brooks did not immediately return a phone call on Thursday afternoon to comment. Fidelity Investment, which owns National Financial, "can't comment specifically about Brookstreet's claims, but we are not responsible," a company spokesman said. "National Financial has clear margin agreements in place and uses reputable firms to price securities held in brokerage accounts," the spokesman said.