Filing could leave plaintiffs fighting over insurance money
GunnAllen Financial Inc. is preparing to declare bankruptcy this week, leaving hundreds of investors who have sued the broker-dealer to battle over what's left of the firm's assets, including its insurance policies.
Finra shut down the Tampa, Fla., broker-dealer after determining it could not meet its net capital requirements. The firm, which was one of the fastest-growing brokerage firms in the industry in the first half of the decade, was struggling under a number of legal problems and owed up to $50 million in liabilities from lawsuits filed by investors defrauded by brokers affiliated with GunnAllen.
The legal costs crushed the firm, which was spending $500,000 a month on lawyers, executives have said.
The firm is considering filing for Chapter 11 bankruptcy protection, sources said. If that occurs, that means GunnAllen's business would be reorganized and kept alive — rather than liquidated. Companies that intend to go out of business typically petition the courts for protection under Chapter 7 of the bankruptcy code.
If GunnAllen does file for Chapter 11, the value of the brokerage's insurance policies could prove to be crucial to investors suing the firm, said Scott Silver, an attorney with Blum & Silver LLP who represents about 100 investors with arbitration claims against the firm in the matter. “We are looking at the directors-and-officers policy,” Mr. Silver said.
Fred Kraus, who remained as GunnAllen's president after the firm was closed last month, did not return calls seeking comment. John Sykes, GunnAllen's largest shareholder, said he had no knowledge of the firm's potential plans to declare bankruptcy. He resigned as the brokerage's chairman in November, he said, and has not been involved in the company since.
In a separate matter, the two founders of GunnAllen, Donald “Jay” Gunn and Richard Allen Frueh, have parted ways. The two teamed up to launch the firm in 1997, with Mr. Frueh serving as its chief executive and Mr. Gunn mostly sticking to investing, his clients and his book of business. When the firm went under last month, the two, along with a number of GunnAllen brokers, moved to J.P. Turner & Co.
While Mr. Frueh remains an adviser at J.P. Turner, Mr. Gunn is in the process of joining the private client group of Anderson & Strudwick Inc. Mr. Frueh said he did not know why Mr. Gunn left.
Anderson & Strudwick previously had landed one of GunnAllen's biggest-producing group of brokers, said Todd Newton, the firm's CEO. Led by Reggie Robinson, that office of 10 brokers, who are employees and not independent reps, has about $500 million in client assets and generated $3.8 million in fees and commissions in the past 12 months.
