Stockwalk accounts set to reopen under SIPC plan
Terry Fiedler
Star Tribune
Published Oct 2 2001
About 175,000 frozen brokerage accounts of Stockwalk Group's
MJK Clearing could be thawed by Wednesday as part of a deal
that will transfer those accounts to Dallas-based Southwest
Securities Group Inc.
Individual customers with accounts of up to $2 million could
have access to all of their money through their regular brokers
by Wednesday, as part of the tentative agreement. Those with
more than that amount could gain access to no less than 75
percent of their account value, pending the disposition of some
other assets of MJK Clearing.
The deal was announced Monday by court-appointed trustee
James Stephenson and the Securities Investor Protection
Corporation (SIPC), which helps investors recover money from
troubled brokerage firms. The terms include a transfer of
accounts but no payments from Southwest Securities for MJK
Clearing, a subsidiary of Golden Valley-based Stockwalk
Group Inc.
The clearing operation was considered Stockwalk's most
profitable property, with accounts representing assets of more
than $10 billion. MJK conducts clearing services for more than
60 brokerages, earning commissions on the settlement of buy
and sell orders.
The deal is expected to be approved today in U.S. Bankruptcy
Court in Minneapolis.
With the court's approval, Stockwalk will keep the Miller
Johnson Steichen Kinnard brokerage, which is technically a
subsidiary of MJK Clearing. Details of that transaction were not
released, and Stephenson did not return phone calls. Trades
through the brokerage and Stockwalk's online subsidiary from
now on will be cleared through Southwest.
The SIPC called the transfer its largest liquidation ever, in
terms of the number of clients involved. It comes at an
estimated cost to the agency thus far of more than $40 million.
Even though the SIPC protects customers' assets up to $500,000
and Stockwalk has said it has $49.5 million in separate private
insurance, some large clients may not be made whole, said
Michael Don, president of the SIPC.
Jim Bowman, spokesman for Southwest, declined to discuss the
financial details of the deal. He said the transfer might not be
complete by Wednesday. The transfer must take place before
trading in the frozen accounts can resume.
Bowman called the transfer "a sizable addition to our business."
Southwest currently clears about 250,000 accounts. He added it
was too early to know whether Southwest would absorb MJK
Clearing's 85 to 90 employees.
Stockwalk halted all trading Sept. 25 after an MJK Clearing
client, Native Nations Securities in New York City, failed to
make a $60 million payment for a loan of shares in
California-based GenesisIntermedia Inc. The shortfall wiped
out MJK's capital.
The question now is whether Stockwalk and Miller Johnson
Steichen Kinnard can keep clients who have been denied access
to their accounts and their frustrated brokers. About 350
brokers and another 400 employees work for Stockwalk in eight
states.
"The whole company was a victim of a yet-unexplained event,"
said Stockwalk spokesman Matthew Kyler.
The future of company, Kyler added, will be "dictated by our
ability to retain clients and registered reps. It would be an
understatement to say that this was a traumatic week. We're
hopeful that people will realize that the circumstances leading
to the freezing of accounts was extraordinary."
Even if the company retains its clients, the uncertain conditions
in the stock market might lead Stockwalk to decide it doesn't
need as many employees in the future to meet demand, Kyler
said.
He added that Southwest has $4 billion in assets.
Stockwalk hopes to make every investor whole, Kyler said, but
the firm still is determining how to address clients holding assets
such as commercial paper and some bonds issued by Miller
Johnson.
He said there might be some temporary restrictions on the
trading of stock in the now-frozen accounts.
"We don't know yet," Kyler said. The SIPC "wants an orderly
resumption of commerce."
Stockwalk and Miller Johnson plan to continue to underwrite
stock issues, particularly private placements of stock, as well as
fixed-income issues. The company also expects to continue its
research coverage on stocks, including a number of small
Minnesota firms for which it provides the only analyst
coverage.
-- Terry Fiedler is at tfiedler@startribune.com .
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