Finra: Defunct firm, execs hid distress

WJB Capital Group Inc. and two of its top executives settled allegations that it masked the firm's financial…

WJB Capital Group Inc. and two of its top executives settled allegations that it masked the firm's financial difficulties and traded securities without sufficient capital during the two years before it closed in January, according to industry regulators.

The Financial Industry Regulatory Authority Inc. said that the firm, and specifically chief executive Craig Rothfeld and chief financial officer Gregory Maleski, misstated balance sheet and net-capital calculations.

The firm, which had trading desks in Boston, Denver, New York and San Francisco, had about 100 employees when it closed, Finra said.

“Both WJB's CEO and CFO hid the precarious financial condition of the firm, misstating the FOCUS reports and net-capital calculations by as much as $4.4 million per month over a two-year period,” Brad Bennett, Finra's chief of enforcement, said in a statement.

“FORGIVABLE LOANS’

The firm and executives misstated WJB's balance sheet and other records by improperly treating nearly $10 million in compensation that was paid to 28 employees as “forgivable loans,” Finra said.

WJB's balance sheet during its last three years “would have reflected substantial losses in addition to those that it was already experiencing” if finances were correctly accounted for, the Finra consent agreement said.

Under the terms of the Finra deal, the firm was expelled, Mr. Rothfeld was barred from the securities industry and Mr. Maleski was barred from acting in a principal capacity. They neither admitted nor denied the allegations.

Tom McCabe, a New York attorney who represents the defunct firm and the executives, declined to comment.

A second attorney, George Brunelle of Brunelle & Hadjikow PC, didn't return a call seeking comment.

WJB and the two executives also falsely misclassified certain items as allowable for net-capital purposes, including $1.6 million in funds from providing “non-deal road shows” and third-party research, and a $1.5 million loan the firm received from its clearing firm, Finra said.

As a result, the firm traded in securities when it had a level of net capital that was below what was required of it by the the Securities and Exchange Commission.

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