Newbridge Securities in Regulators’ Sights, Again
WealthManagement.com
July 18, 2012
Florida’s Office of Financial Regulation, the state securities regulator, is investigating Ft. Lauderdale broker/dealer Newbridge Securities, wealthmanagement.com has learned. It’s just the latest in a long trail of regulatory woe for Newbridge, whose executives and brokers have fallen afoul of securities laws repeatedly since the firm started operating in 2000.
The broker/dealer has a little over 200 reps, each of which is required to generate a minimum of $80,000 in trailing 12-month commissions, according to its website. The firm reported revenues of $39 million and a net loss of $390,983 in 2011, a March filing with the Securities Exchange Commission shows.
The Florida state regulator confirmed that it has a case open on the firm, based on customer complaints, but could not discuss the case further or release the complaints. FINRA and the Securities Exchange Commission declined to comment on whether they are investigating the firm as well.
“We got two minor inquiries from the state of Florida but there’s no investigation at this time,” said James Todd Newton, President and Co-CEO of Newbridge. “One is relative to a past broker over an IRA account and the other is a small $900 complaint that is laughable. That’s all we know of from the state of Florida and they are very inconsequential. They’re being properly addressed by our firm.”
Newbridge has 16 regulatory blemishes and six arbitrations on its record in the Central Registration Depository system, and many of its brokers have numerous dings on their U4s.
“They’re between a rock and a hard place,” says IBD recruiter Jonathan Henschen, who recruited to Newbridge three to four years ago. “It’s tough to turn around a firm when you have this legacy going on. It turns off reps when firms have compliance legacy. More and more reps are catching on to the fact that when you have a lot of clutter in your past, it means a difficult compliance environment.”Like many other b/ds, Newbridge recently got caught up in sales of shoddy private placements and was sanctioned by FINRA, along with seven other firms, last fall. The firm was fined $25,000 and its former chief compliance officer Robin Fran Bush was suspended in any principal capacity for six months and fined $15,000 in connection with the sale of four DBSI private placements and a Medical Capital private placement.
It wasn’t the first time a Newbridge executive was suspended from the industry. Former CEO Scott Goldstein was suspended from any principal capacity for one year from September 2010 to September 2011 and fined $100,000 for failure to supervise AML and other violations.
Currently, James Todd Newton and Thomas Joseph Casolaro share the CEO role at Newbridge. (Todd Newton has no dings on his record. Casolaro was charged with attempted burglary of a vehicle, but found not guilty. He was convicted of “prowling and loitering.”)
Can they right the ship? In general, when firms get a reputation for trouble it is difficult to change; the firm begins to attract financial advisors with spotty records and dubious ethics and that can lead to more trouble, says Henschen. Then compliance and E&O costs go up, which eats into profits, and recruiting gets more difficult. And it’s not like the owners can cash out as there are few buyers for such troubled firms. If things get really rough, a firm with lots of regulatory trouble may run out of excess net capital and get shut down by regulators.
“It’s kind of a smaller version of Gunn Allen in a lot of ways,” Henschen says, referring to the b/d that was shut down in March 2010 when regulators found it did not have enough capital to continue operating. “You have a lot of problematic reps, you don’t seem to be able to supervise them, you tend to have FINRA camped out at the b/d.”Some firms do turn things around by cleaning house of reps with complaint histories, injecting new capital and hiring fee-based reps rather than those paid by transactions. For examply, Summit was a firm that also had a tarnished track record, but then it overhauled its advisor force, switching to less transactional reps.
“But they were never as bad as Newbrige,” says Henschen. “They have good finances, $10 million excess net capital. They have reinvented themselves.”Remains to be seen if the same can be said for Newbridge. Much will depend on whether the current investigation tips the scales or turns out to be simply groundless accusations of disgruntled clients. Newbridge’s net capital as of Dec. 31, 2011 was $597,152, exceeding its minimum net capital requirements by $333,555. Assets totaled $3.9 million and liabilities plus shareholder equity totaled $4.0 million. Newbridge has offices in Florida, New York, New Jersey, Illinois and Arizona.