Was it the nasty recession or the firm's history of shooting for the moon? Whatever the root cause, securities regulators stepped in Monday to close the Tampa brokerage GunnAllen Financial for failing to maintain required levels of capital. The firm's 400 reps and advisers are scrambling to find work at other brokerage firms.
GunnAllen remains open, but for only one reason. It is winding down clients' investment accounts, selling shares and liquidating other investments. The firm that once had big dreams is now prohibited from trading or buying shares. Barring some regulatory-orchestrated rescue of GunnAllen — still a possibility — this firm's days appear to be over.
"I can confirm that we have dipped below the net capital required to operate," GunnAllen marketing director Lisa Rotondo told me Monday. "We are in a liquidating trades only environment." Client accounts, she said, are safely in the hands of a third party custodian identified as Ridge Clearing and Outsourcing Solutions.
So what's next? Said Rotondo: "We do not know what happens next."
What exactly drove GunnAllen into a ditch is not yet crystal clear. But signs of trouble were not hard to find. GunnAllen's demise stemmed from unchecked growth, questionable standards, a rogue broker, a hefty Ponzi scheme, nearly $50 million in client lawsuits, and even a rescue by a rich buyer who then backed away.
Here is what we've learned so far:
• GunnAllen had a history of rapid expansion fueled by a habit of hiring brokers with less than stellar backgrounds. One broker in particular, Frank Bluestein of GunnAllen's affiliate in Michigan, allegedly concocted a Ponzi scheme that grew to $350 million or more before it was discovered and shut down.
• In 2008, wealthy businessman John Sykes, founder of Tampa's successful call center company Sykes Enterprises, bought control of GunnAllen with plans to create a larger financial services enterprise.
• In December 2009, Sykes suddenly left GunnAllen and resigned from its board. Sykes did acquire a part of the company called Pointe Capital and built a separate company called JHS Capital Holdings. Sykes did not specify why he left GunnAllen. But you have to wonder if, once he took a closer look at his purchase, he realized there were too many problems to fix.
• The Financial Industry Regulatory Authority, or Finra, investigated GunnAllen early this year to determine if — absent Sykes' funding — its capital levels were adequate. Last week, according to the trade publication Investment News, Finra told GunnAllen that it lacked sufficient capital to open for business on Monday morning. Finra spokesman Herb Perone declined comment on GunnAllen.
"If any firm falls under its net capital requirement, it triggers a deeper investigation by us," Perone said.
GunnAllen was founded in 1996 when Donald Gunn and Richard "Allen" Frueh teamed up to buy and rename Napex Financial Corp. After the market crash of 2000, GunnAllen bucked conservative thinking and chose to expand aggressively in hopes of taking the company public later.
It was not to be. Now the future of the firm's remains will be decided by regulators.
Robert Trigaux can be reached at firstname.lastname@example.org.