Dozens of small and midsized firms closed their doors in 2010 - many couldn't maintain minimum net capital.  As of 11/30/10, there were only 4,619 FINRA member firms - that a drop of 101 from the end of 2009.  Bruce Kelly of InvestmentNews further reports that, since 2005, the B/D community has seen a drop of 9%. 

Which indicates a pattern - e.g., a steady decline in the net-net number of B/D's over the past few years, according to FINRA statistics.   2009 saw 175 fewer B/D's registered with FINRA than a year earlier.  2008 saw a drop of 110.   

Ron Kovack, chairman of Kovack Securities Inc. pointed to 2 types of firms that have recently run aground and been forced to shut down.  Some simply cut corners during tough times, leading to bad business practices. Others were shuttered due to minor rule violations that led to staggering legal costs arising from lawsuits and arbitration claims.

GunnAllen Financial Inc., which had been one of the fastest-growing indie B/D's of the last decade and, at one time boasted 1,000 affiliated RR's, was closed in March.  In June, Jesup & Lamont Securities Corp., a Wall Street mainstay whose corporate lineage dates back to the 19th century, closed due to net-capital violations.  At the time the firms closed, GunnAllen had about 500 reps and Jesup & Lamont 300.

Expect more failures and closings this year, industry observers said. “It's been a horrible market and firms are thinly capitalized,” said Larry Papike, president of Cross-Search, a recruiting firm specializing in independent reps and executives at such firms.  “And then there's the limited-partnership debacle,” he said, referring to the cascade of lawsuits and arbitration complaints that numerous independent broker-dealers face in the wake of SEC fraud charges against Medical Capital Holdings Inc. and Provident Royalties LLC.

Dozens of independent broker-dealers sold allegedly bogus private-placement offerings from those firms and now face potential class actions, arbitration complaints from investors, and even lawsuits from receivers in bankruptcy proceedings looking to claw back commissions from broker-dealers.

Liabilities from Medical Capital and Provident sales contributed to the demise of some of the broker-dealers that closed this year.

That group includes Okoboji Financial Services Inc., a leading seller of Provident Royalties private placements, which closed last May.

Cullum & Burks Securities Inc., which was heavily involved in the sale of Medical Capital private placements, also shut its doors in 2010.    [InvestmentNews, 1/2]