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February 1, 2013

Rochdale in Limbo Amid Probe

By Gregg Wirth

The fate of embattled Rochdale Securities is up in the air.

The Stamford, Conn., brokerage continues to seek an injection of fresh capital as it awaits resolution of a federal investigation into an errant billion-dollar bet on Apple stock made by a Rochdale trader.

Chief executive Daniel J. Crowley told Traders Magazine that the institutional trading firm is still open, even though it's under a cease-and-desist order from the Financial Industry Regulatory Authority that keeps the firm from publishing research or trading securities.

"We're still alive, but there's nothing pending," Crowley said. "I'm doing my best, but really I can't talk about the investigation."

The closely held firm had $3.44 million in net capital as of Dec. 31, 2011 , according to its most recent annual audited report filed with the Securities and Exchange Commission. Because of the rogue trade, the firm now has a negative capital position, and FINRA needs to see that resolved before allowing the brokerage to restart research and trading operations, Crowley said.

Rochdale was rocked last fall when trader David Miller, of Rockville Centre, N.Y., allegedly made an unauthorized purchase of almost $1 billion in Apple shares ahead of the computer company's Oct. 25 earnings report.

In a trade described by David Fein, the U.S. Attorney for the District of Connecticut, as "a fraudulent get-rich-quick scheme that backfired," Miller bought more than 1.6 million shares of Apple in the hope that the stock would bounce up after earnings were announced.

Instead, the stock dropped, and when it was revealed that Miller had only been authorized by a Rochdale customer to buy 1,625 shares of Apple, Rochdale was on the hook for the remainder of the trade, losing about $5 million to wind down the position.

On Dec. 4, 2012, Miller was arrested for wire fraud by the Connecticut U.S. Attorney and the New Haven, Conn., division of the FBI. He was released on a $300,000 bond. If found guilty, he could face as much as 20 years in prison.

The Apple trade is the subject of an ongoing market manipulation investigation by the FBI, and both FINRA and the SEC have joined the case.

On Dec. 28, the U.S. District Court for the District of Connecticut granted a joint request for a continuance in the case until Feb. 28. The request was made, according to the court filing, because Miller had "requested additional time to explore the possibility of resolving his case without being indicted."

While all this was happening, Crowley was attempting to find new capital or some other lifeline to keep his 37-year-old firm afloat. Employees started looking elsewhere, and the firm lost several key people, including Kristen Talgo and Hal Tunick, who led institutional equities trading. They were two of five traders who left Rochdale to join Rafferty Capital Markets in November.

Also joining Rafferty was Rochdale's best-known employee, banking sector analyst Dick Bove. The 71-year-old Bove said he will begin publishing his research at Rafferty later this month, and will continue working out of his office in Tampa, Fla.

Bove described what happened at Rochdale as a "horrible event" and hopes the firm can remain viable and put all this behind it. "I really enjoyed working for a smaller firm like Rochdale, and that's why I chose to move to a similar-size firm with Rafferty," he told Traders.

While Bove had said publicly he wouldn't leave Rochdale until Crowley "threw in the towel" on finding a way to keep the firm afloat, he said he simply ran out of time. "I don't think Dan Crowley has given up trying to make Rochdale viable again, and I think he will," Bove said. "But I gave them almost three months, and ultimately I knew I had to get myself back into the marketplace, or else I wouldn't remain viable."

Crowley said he never gave Bove any indication that he was ceasing his efforts to rescue the firm, but Bove just took off on his own. "I think he felt too much time had passed and he was afraid of losing his clients," Crowley said.

Crowley said he still is seeking to recapitalize the firm or find investing partners, but he realizes that in the eyes of many, that possibility is directly tied to the ongoing investigation and court case.

"Clearly, any potential investors may be waiting to see where the legal investigation goes," he said.


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