Another troubled broker-dealer is closing, but with a twist: The firm is telling its advisers to move en masse to another firm, according to brokers at the firm and industry recruiters.
Last Wednesday, Workman Securities Corp. told its 100 representatives and financial advisers it will close in November. Then came the announcement that they could move as a group to Allied Beacon Partners Inc.
The announcement surprised brokers, who were informed at Workman's annual compliance meeting last week, with reps in attendance both online and at a hotel near its home office in Eden Prairie, Minn., according to one Workman rep, who asked not to be identified.
Reps who agree to switch to Richmond, Va.-based Allied Beacon were promised a smooth transition and that the new firm would keep Workman's payout schedule or grid for two years, according to the rep.
Workman was a large seller of Provident Royalties LLC private placements, which went into bankruptcy in 2009 and later was charged with fraud by the Securities and Exchange Commission. According to a filing in federal court in Dallas, Workman's reps sold $9 million of the private placements, putting it among the top 10 leading sellers of the product.
The firm has up to 20 unsettled investor complaints stemming from losses from private placements, the rep said.
“It just wasn't worth the investment anymore,” the rep said.
Paul Maxa, Workman's chief executive, didn't return phone calls seeking comment. In an e-mail, Allied Beacon's CEO James Hintz stressed the invitation to Workman's reps to join the firm was not a merger or acquisition.
"Allied Beacon Partners did “not” purchase or acquire any assets from Workman Securities Corporation," Mr. Hintz wrote. "We simply agreed to assimilate their registered representatives into our organization. There was no conveyance of any enumeration of any kind for the assimilation. We structured this carefully so we would not trigger a transfer in interest issues for the assumption of liabilities that Workman Securities currently has."
"With the numerous firms filing BDW (broker-dealer withdrawal from Finra forms) in the last two years creating chaos in the financial industry for their customers and representatives, Workman should be commended for standing up and reaching out to the broker dealer community to find a firm that was willing to assist in them in their orderly exit from the industry prior to filing a BDW," he wrote. "This advance transfer allows Workman to transfer their customers in a manner that keeps customer confusion and disruption down to a minimum and at the same time preserves over 100 jobs for its representatives."
Dozens of broker-dealers that sold the allegedly fraudulent Provident private placements, or those issued by Medical Capital Holdings Inc., have closed.
In such closings, reps typically scatter or are picked off by competing firms that have kept a steady watch over the broker-dealer's demise. Moving as a group is typical of a merger, acquisition or sale of a firm's assets, not a closing.
“We're not surprised, looking at their excess net capital at the end of last year and their litigation log in their financials,” said Brad Fay, an industry recruiter with IBD-Placement & Recruiting Services, who has spoken with several reps about the firm's closure and finding new firms.
Workman this year appeared to make progress with its swamp of litigation. In February, it reached an agreement with the Financial Industry Regulatory Authority Inc. to pay $700,000 for partial restitution to more than a dozen clients who had sued the firm over investments in Medical Capital and Provident Royalties.
Both Workman and Allied Beacon clear with RBC Capital Markets LLC.
Allied Beacon's parent company is Beacon Acquisition Partners Inc., which is listed on the Toronto Stock Exchange. Beacon Acquisition Partners acquired another broker-dealer this year and renamed it Allied Beacon.
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This is an updated version of a story that ran in the Aug. 8 edition of InvestmentNews)
Email Bruce Kelly at [email protected]
