The Blog Of The Securities Industry Professional Association

Gunn Allen And Investor Protections

FINRA’s Investor Protection is questioned.


These are the concrete pillars that are blazed across web sites and brochures and even Television commercials distributed by FINRA. While we here at the SIPA have always questioned whether this was the real goal of FINRA, we can at least agree that Investor Protection should be the center point of any and all regulatory functions. By now we have all have heard how FINRA has closed Gunn Allen’s doors for falling below net capital requirements. In fact Former owner John Skyes was quoted in an interview with Investment News as saying: “he was in the process of brokering an eleventh-hour deal to save the cash-starved firm when securities regulators abruptly shut it down last month.”

For those of you who do not know it yet, a few of Gunn Allen’s brokers were caught up in the Ponzi scheme that caused total losses of approximately 50 million dollars. Lawsuits followed and FINRA forced the firm to put the potential losses on their books as contingent liabilities. The question we have is were investors protected by FINRA in any way shape or form? First of all, the time for getting ‘tough’ with Gunn Allen was when the Boca Raton District conducted audit after audit over the past 7 years on the Tampa Based firm. Nobody from FINRA thought it was odd that the firm was making millions from one or two brokers with a Texas based Oil and Gas limited partnership investments? The partnership turned out to be a complete Ponzi scheme yet it was not uncovered despite dozens of FINRA audits? What’s done is done so lets fast forward to the closing of the firm and look at things from a SIPA rational:

1) FINRA failed to protect the investors

2) Public investors are out $50 million dollars

3) FINRA rejects new capital or a bailout plan and instead closes Gunn Allen

4) The heads of Gunn Allen are still sitting in their Tampa offices, but instead of getting 100% payouts they now are an OSJ of a larger firm making 95% payouts.

5) Public investors now have no firm to settle with or to sue and are out $50 Million

This is either the biggest farce or the most ingenious way to bilk and abuse investors and then obtain help from FINRA in making it impossible to get redemption. It is our humble opinion that investors who were out 50 million would give anything to get a $25 million settlement right now, yet that chance has come and gone. We believe that its times like these that FINRA and the SEC should step in and offer guidance, support and possibly a way to set up a fund to help investors recoup money. Gunn Allen certainly had large revenues so why not force the firm and management to earmark a certain percentage of future earned revenue into a FINRA or SEC appointed escrow account that will be split amongst the parties if and when a lawsuit is decided? The amount could be as little as one million per year but to investors out 50 million, earning 10 million back over 10 years is a hell of a lot better then being told that the firm is dead and there are no assets anywhere. The truth of the matter is that the vast customer bases and registered representatives scattered throughout the country could have fetched several million. We understand Net Cap rules and regulations but we also know that when Merrill Lynch, Bear, Goldman and Morgan were billions under water in 2008 the Regulators looked the other way. Maybe Gunn Allen should have been given TARP money and then had that money directed to the defrauded investors and Gunn would have to pay back the fed. We don’t have all the answers but as of right now, all the Gunn Brokers and Founders are sitting pretty with basically all their clients, a high payout and no liability….and FINRA basically assisted them in being able to walk away from a 50 million fraud. Does this make sense to anyone?

Investors were prayed upon by some bad brokers and not only did FINRA fail to protect the investors, but then they closed the investors only life line to redemption by hastily closing the firm.

FINRA: Investor Protection. Market Integrity?

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April 7th, 2010


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