Another small broker-dealer has been shut down, with this one owing $1.2 million in damages and legal fees imposed on it in a recent arbitration decision.
Another small broker-dealer has been shut down, with this one owing $1.2 million in damages and legal fees imposed on it in a recent arbitration decision.
Last month, the Financial Industry Regulatory Authority Inc. requested the termination of MaxxTrade Inc. of Lexington, Ky., which employed three representatives.
MaxxTrade had been on Finra's radar for a while. In May, the regulator suspended the firm's license because it failed to pay arbitration fees.
It is the latest in a string of B-Ds to shut down. An increasing number of small broker-dealers — most facing capital shortages and legal liabilities — have gone out of business or been forced to merge this year. That list includes GunnAllen Financial Inc., Jesup & Lamont Securities Corp. and Chicago Investment Group LLC.
MaxxTrade, which generated $240,000 in revenue last year, is on the hook for $1.2 million to former clients who sued the firm for negligence, suitability and breach of fiduciary duty, along with other allegations, according to the arbitrators' award.
The firm's two owners, David Schneidt and Jeffrey Garstka, were also named in the arbitration complaint, which was decided on Aug. 16 by three Finra arbitrators.
The claimants charged that the owners “engaged in an unsuitable pattern of investing their accounts in a single security for the sole purpose of generating commissions.” According to the award, the investment was senior subordinated notes of Tousa Inc., a Florida homebuilder that filed for bankruptcy protection in 2008.
A call to MaxxTrade was unanswered.
E-mail Bruce Kelly at bkelly@investmentnews.com.
