A rising number of financial companies have gone bankrupt in recent years.
According to Bankruptcydata.com, 610 filed protection pleadings in 2015 compared to 636 in 2016 and 350 through July 14, 2017.
“All organizations are just one or two bad decisions from filing bankruptcy protection but for the financial advisory industry, it’s accelerating,” said David A. Duryea, business expert and author of Do the Right Thing: In Business Improvement, Including Process and Technology.
The White Plains, New York firm Murphy & Durieu (M&D), which was known for its access to fixed income pools of liquidity, sought safety from creditors in the U.S. Bankruptcy Court for the Southern District of New York on May 16.
“Customers are demanding higher returns and this is causing profits to shrink,” Duryea told Newsmax Finance. “The surge of investments in index based funds compared to active managed funds has also contributed.”
M&D had been so successful that in January 2015 the British interdealer brokerage firm Tullett Prebon announced it was hiring 40 U.S. based M&D bond brokers.
“U.S. fixed income is one of the largest Over the Counter (OTC) market segments in the world and this acquisition allows Tullett Prebon to provide even stronger and better execution to our clients across the range of fixed income products,” said John Abularrage, who was CEO of Tullett Prebon Americas at the time.
The twists and turns that resulted M&D’s bankruptcy include the firm being expelled from the securities industry by FINRA in July 2015 due to the firm’s failure to pay some $90,000 owed. There were 28 other M&D incidents listed on the regulator’s website.
Meanwhile, on the West Coast, multiple funds managed by a high profile wealth manager in Laguna Hills landed in U.S. Bankruptcy Court for the Central District of California on May 25, 2017.
William Jordan Investments Inc and some 22 affiliates claimed liabilities of up to $10 million.
“These two firms I believe are part of a growing list of financial advisory firms that just did not respond to the market forces and many will file for bankruptcy protection as a result,” Duryea said.
A five-star wealth manager award winner, Mr. Jordan is the executive officer and manager of the Secure California Income Fund, CA Real Estate Opportunity Fund I, LLC and the CA Indexed Growth Fund, LLC, according to SEC filings. Jordan’s firm reportedly attracted investments by offering membership units through Private Placement Memorandum (PPM). Investors could also participate in certain funds with loans and promissory notes in exchange, according to Mr. Jordan's declaration in court filings.
Unlike William Jordan Investments Inc., M&D’s chapter 11 filing has at its core Secured Demand Notes (SDN) and up to $10 million in assets and liabilities including a disputed $2,727,498.00 owed to Janine May Scharff and $1,109,739.00 owed to Kirstin May Galvin who are both Greenwich residents classified as SDN lenders in court filings.
M&D’s Chief Restructuring Officer Joshua Rizack is challenging claims that collateral accounts attributable to Scharff and May constitute their property and not M&D’s.
Rizack stated in his declaration to the Court that the importance of this dispute is that if Scharff and May are right, all SDN Collateral Accounts are the property of the SDN Lenders not the chapter 11 estate and there would be insufficient assets to pay other non-subordinated creditors
“Both M&D and William Jordan Investments needed to recognize market forces as well as industry shifts and should have respond by taking a hard look at their core business model about 5 years ago,” Duryea said. “They needed to adjust or develop a new core business model to produce a profitable, sustainable operation.”
Juliette Fairley is an author, lecturer and TV host based in New York.
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