‘Irregularities’ May Cut Profit at Brokerage
Morgan, Olmstead, Kennedy & Gardner Capital, a fast-growing Los Angeles-based securities firm, said Friday that it has discovered “irregularities” in the execution of certain securities trades that could result in a “significant adverse impact” on earnings.
Company President Bryan L. Herrmann refused to elaborate on the nature of the irregularities or the size of the potential loss, saying that the irregularities were found recently after a routine review and “it was a little too early” to determine the full impact.
The case involves execution of trades that did not follow “normal company procedures” and apparently does not involve theft, fraud, embezzlement or insider trading, he said.
One employee, whom he refused to identify, has been fired because of the affair, Herrmann said. No clients are involved and no litigation has yet been filed, although the company intends to seek remedies, including recoveries from third parties or through insurance, he said.
Regulators Advised
Information on the case has been turned over to the Securities and Exchange Commission and National Assn. of Securities Dealers, but neither has initiated a formal investigation, Herrmann said. Officials in the SEC’s Los Angeles field office were not available for comment late Friday.
Revelation of the irregularity came as Morgan, Olmstead has been enjoying sharp gains in profits and revenue, particularly through a major expansion in investment banking. The company earned $1.72 million in the nine months ended Sept. 26, compared to a profit of $542,000 in the same period a year ago.
The company said losses from the trading irregularities will not impair its capital for regulatory purposes. It reported capital of $21.4 million as of its latest quarter ended Sept. 26.
Separately, the firm said it had concluded all settlements and charges stemming from certain stock loan activities during 1982. A 1983 SEC complaint in the matter had charged that New York businessman Victor Schipa and two firms he allegedly controlled defrauded Morgan, Olmstead and two other securities broker-dealers of about $4 million.
The latest settlement will result in an extraordinary after-tax charge to earnings in the fourth quarter of about $370,000, Morgan, Olmstead said. The firm had written off $1.3 million in 1983.
