Three former directors of New Jersey-based Halpert and Co. are starting up their own broker-dealer after the firm withdrew its broker-dealer license amid lawsuits and regulatory action.
Halpert on Oct. 29 applied to the National Association of Securities Dealers to withdraw the firm's license, after last spring's barrage of lawsuits and regulatory action over alleged fraud associated with the sale of Bennett Funding Group securities, many of which were purportedly tax- exempt.
The three former Halpert directors are starting up another broker- dealer called Jeffrey Matthews Financial Group. An application for a broker-dealer license for Jeffrey Matthews has been pending with the NASD since June 4. The application was originally filed under the name Halpert Cohen & Co.
The application lists as directors: Jeffrey Halpert, the son of Halpert and Co. president Alan Halpert; Matthew Cohen; and Patrick Tiedemann, the former treasurer of Halpert and Co. All three were directors of Halpert and Co., according to Disclosure Inc. They did not return phone calls.
Industry reaction ranges from sympathy and good wishes to outrage.
"A lot of brokers worked there (at Halpert) and a lot of brokers have been hung out to dry," said one market participant, who asked to remain anonymous.
But another broker-dealer said Alan Halpert didn't know about the alleged fraud. "They didn't have a clue," said Richard Goettlich, president of First Interregional Equity Corp. of Millburn, N.J., the same town where Halpert maintained its headquarters.
First Interregional itself sold about $20,000 of Bennett securities - compared to Halpert's reported $200 million or so - and is named in a class-action lawsuit over the dispute.
"It's not that I was so smart. I guess I was lucky I stopped selling (Bennett securities) in 1992," Goettlich said.
Meanwhile, Parsipanny, N.J.-based J.B. Hanauer & Co. last month purchased some Halpert assets and hired 26 people, including 18 professionals, from Halpert's Philadelphia office, said Barry H. Zucker, J.B. Hanauer's president and chief executive officer.
Wheat First Butcher Singer has hired at least one professional from Halpert's Washington office - Diane Gabriel, a former Halpert senior vice president in Washington. Gabriel declined to be interviewed for this story.
Halpert's office closures come on the heels of a series of legal and regulatory challenges.
The NASD in April charged that Halpert and Co. did not have procedures in place to ensure compliance with the Municipal Securities Rulemaking Board's Rule G-37. The regulatory body censured Halpert and fined the firm $2,500 for failing to file G-37 forms for five quarters in 1994 and 1995, while participating in 15 negotiated municipal securities transactions during that time.
Rule G-37, which took effect in April 1994 to curb pay-to-play practices in the municipal market, generally bars municipal broker-dealers who contribute to issuer officials from engaging in negotiated transactions with those issuers for two years afterward. It also requires firms to file quarterly reports that list their negotiated transactions and political contributions.
Halpert also is currently one of five New Jersey broker-dealers named in a class-action lawsuit filed by investors who bought about $570 million of Bennett securities. Seven Florida, Pennsylvania, and New York broker- dealers and the bond law firm Kirkpatrick & Lockhart are also named as defendants in the suit.
"I think they (Jeffrey Matthews) have exposure from the case," said Richard Stone, a lawyer with Kaufman Malchman Kirby & Squire, one firm representing the plaintiffs in the class action.
The Bennett Funding Group and its subsidiaries issued purportedly tax- exempt lease-purchase contracts by purchasing and repackaging local governments' leases on office equipment, according to the complaint filed in the class-action lawsuit. Actually, the lawsuit alleges, the Bennett group made payments on these securities using revenue from new investors - the lease contracts in many cases did not exist or were sold multiple times.
The suit alleges that brokers of Bennett securities knew that the investments were worthless, but made false and manipulative statements to convince investors to buy them.
The Securities and Exchange Commission has filed civil charges against the Bennett group, and the U.S. attorney indicted chief financial officer Patrick Bennett in what the commission called the "largest Ponzi scheme" in history, according to the New Jersey Law Journal.
The NASD application form filed by Jeffrey Matthews discloses two civil lawsuits that could affect the new firm or its officers. One suit, a class action, was filed by three investors in the U.S. District Court for the Southern District of New York; the other was filed by one customer in the Superior Court of New Jersey in Essex County.
The first lawsuit alleges "misrepresentation and omission of material facts in the fraudulent sale of securities" and the second charges "misrepresentation and negligence with respect to sale of Bennett Funding Group leases."
Some market participants said that Halpert and Co. officials should have known about the alleged fraud if they did their due diligence. One industry player suggested that the firm didn't look closely enough at what it was selling.
"I don't think any of them knew or were co-conspirators going in," he said, "but then, when there are millions out there and the fraud comes to light ... people can fall into those kind of things."
"I don't think most of the dealers had any inkling that it was a problem," he said. "Perhaps they didn't do enough due diligence. There should have been a red flag. When you're getting 10% return when everybody's getting 6%, something's wrong."
