Posts Tagged ‘Pali Capital’

Pali Capital Files for Bankruptcy – Bankruptcy Filings Attached

Friday, April 2nd, 2010

Pali Capital, a well known boutique investment bank and underwriter recently filed for bankruptcy after a failed merger attempt.  The firm was founded in 1995 by former MDs at Merrill Lynch.

According to Bloomberg, “Pali Holdings has filed for bankruptcy protection after failing to sell its boutique securities firm, Pali Capital.

Pali’s Chapter 11 petition, filed in federal Bankruptcy Court in Manhattan on Thursday, listed $716,300 in assets and $31.8 million in debts.”

More from Bloomberg:

“Pali Holdings filed the instant Chapter 11 bankruptcy case to obtain protection from its creditors while it continues to liquidate and wind down Pali Capital,” Gerald Burke, a director of Pali Holdings, said in an affidavit filed with the bankruptcy petition.

The privately held company was in talks to sell the brokerage business to ex-Bear Stearns Companies finance chief Samuel Molinaro and had told shareholders it might go out of business without a sale or cash infusion.

The parent company, based in New York, had an estimated loss of $18.3 million in 2009 and said in a Jan. 14 letter to shareholders obtained by Bloomberg News that it could run out of money by the end of February. The broker-dealer Pali Capital, with expertise in derivatives, fixed income, and investment banking, said Feb. 16 that it would begin to wind down operations.

According to the SF Chronicle “When a brokerage fails, the Securities Investor Protection Corp. names a trustee to protect assets and return customers’ cash and securities. When Lehman Brothers Holdings Inc. filed Chapter 11 in 2008, the SIPC appointed lawyer James Giddens as brokerage trustee. The bank’s North American brokerage business and associated real estate were then sold to London-based Barclays Plc for $1.54 billion.

The largest unsecured creditor named in the Pali Holdings filing was Panama-based Mandeville Holding Ventures Co.

Four CEOs

Pali Holdings has had four chief executive officers or co- CEOs in the past 17 months and its chairman stepped down in December. The firm focused on equity and fixed-income sales, trading and research for institutional clients such as money managers and hedge funds. The company had offices in London, San Francisco, Newport Beach, Chicago and five other U.S. locations, according to its Web site.

Pali Holdings received $3 million of “emergency bridge financing” in November and has lost about $40 million in the past two years, according to the company’s letter, signed by directors Kevin Fisher and Burke.

Pursue Alternatives

Shareholders, including former Pali CEO Bradley Reifler, wrote in response that the company should pursue alternatives to a sale, such as a recapitalization. In their undated letter, signed by Reifler, Wolfgang Stolz and John Staddon and also obtained by Bloomberg News, the shareholders requested a special meeting be held to elect a new board.

Molinaro, the former Bear Stearns executive, was helping Braver Stern Securities Corp. negotiate the potential purchase of Pali Capital and was to become CEO of the combined firm, overseeing about 250 people, people familiar with the talks have said. Molinaro was Bear Stearns’s chief financial officer from 1996 until 2008, when JPMorgan Chase & Co. purchased the company to save it from bankruptcy.

Separately today, New York-based JPMorgan filed a $4.5 million lawsuit in New York State Supreme Court in Manhattan against Pali and Reifler, alleging a loan default.

“Pali was responsible” for the debt, Reifler said in a telephone interview. “When I left in October 2008, there was $66 million in cash, and the loan should have been paid from those funds.”

The case is In Re Pali Holdings Inc., 10-11727, U.S. Bankruptcy Court, Southern District of New York (Manhattan)”

According to ZeroHedge,

The reason for the bankruptcy was provided in the filed affidavit as follows: “Pali Capital experienced consistent pre-tax losses commencing with the second quarter of 2008 and continuing through and including the fourth quarter of 2009, caused by among other things, a substantial slowdown in sales and trading by Pali Capital’s primary institutional clients. These losses are projected to continue into at least the first quarter of 2010. As a result, it was difficult for Pali Capital to maintain adequate levels of excess regulatory net capital to support normal business operations, although Pali Capital is in compliance with its minimum regulatory net capital requirements through February 28, 2010.” So after 4 CEOs in 17 months all Pali is left with is a list of secured and unsecured creditors. And in probably not the wisest move for the privacy of said creditors, the firm has listed the home addresses of Kevin Fisher, Ari Nathan, Leon Brenner and some other rather high profile financiers.

List of largest secured creditors (and home addresses):

Pali Bankruptcy