A small independent broker-dealer, Newport Coast Securities Inc., is closing, according to the head of another broker-dealer that has an agreement to acquire some of its 109 registered reps.
Richard Rappaport, the owner and CEO of WestPark Capital Inc., said Newport Coast was closing but he did not know why it was shutting down. Mr. Rappaport said Newport Coast and WestPark had been in merger discussions for about a year, adding that it was the first acquisition by his firm.
Joseph Mangiapane, who owns the Newport Coast's parent, Rubicon Financial Inc., and is also registered with Newport Coast, declined to comment.
Mr. Rappaport said WestPark is treading lightly when it comes to hiring the Newport Coast brokers. An
InvestmentNews review of the firm's employment roster showed that a large percentage, 63%, have at least one “disclosure event” on their Financial Industry Regulatory Authority Inc. BrokerCheck reports.
That's far above the industry norm. According to Finra, just 12% of the 640,000 registered reps, executives and back office employees of securities firms have at least one compliance mark, known as a “disclosure event,” on their records.
Mr. Rappaport stressed that WestPark had no intentions of hiring Newport Coast brokers with ugly employment histories.
“We signed an agreement (with Newport Coast) to acquire some of the brokers in an asset transaction and [we're] doing normal due diligence on them,” Mr. Rappaport said, including using an outside firm to perform background checks on the brokers and running each broker under the review of a senior management committee at the firm.
The BrokerCheck profiles of the 15 former Newport Coast brokers who moved to WestPark at the start of the week bear Mr. Rappaport out. Nine have zero or one “disclosure event” on their BrokerCheck profiles, and none has more than four.
Several Newport Coast brokers have large numbers of tax liens and judgments during their years working in the securities industry. Critics say brokers with problems paying taxes are a significant warning for investors; if a broker cannot adequately handle his own finances, how can he manage client money properly?
Meanwhile, WestPark Capital, which opened its doors in 1996, has nine “disclosure events,” a $585,000 arbitration award from 2010 and eight regulatory matters, on its
BrokerCheck profile. The most recent regulatory issue was a $50,000 settlement with the New Jersey Bureau of Securities over a broker who acted as an agent in New Jersey after his registration there had been revoked.
Mr. Rappaport pointed to growing pains at the firm for those issues with regulators. “We've made some mistakes but are focused on not having those mistakes recur,” he said, adding that the firm has replaced many of the people involved in those incidents.
The firm offers both investment banking services and wealth management, although the latter is small with only about 50 producing reps, Mr. Rappaport said.
In a time when small broker-dealers are facing increased compliance costs and decreased revenue on margin and money market accounts because of record low interest rates, Newport Coast struggled.
According to its annual financial statements filed with the Securities and Exchange Commission, Newport Coast had total revenue of $22 million in 2014 and a net loss of $236,000. A year later, total revenue decreased to $16.6 million, a decline of 24.6%, while the company's net loss nearly doubled to $456,000, according to the SEC filings.
Finra has recently been on the hot seat over the issue of brokers with lousy financial and compliance histories.
In May, Wall Street critic Sen. Elizabeth Warren, D-Mass., and a colleague, Sen. Tom Cotton, R-Ark., sent the regulator a letter, calling on Finra to do more to protect investors from both advisers who have a history of misconduct and the firms that keep hiring them.
Weeks later, the Massachusetts Securities Division announced a sweep of 241 securities firms with an above-average number of reps with current misconduct reports on their records.
