Cliff Popper, the flashy former Brookstreet Securities broker/trader at the center of the California firm's August collapse, is now suing his old clearing firm, National Financial Services (NFS), for $36 million in damages.
According to Popper's attorney, Jeffrey Kaplan, of Miami law firm Dimond Kaplan & Rothstein, NFS is to blame for the collapse of Brookstreet, and the subsequent disintegration of Popper's roughly $1 billion client portfolio. Kaplan recently filed an arbitration claim against NFS on behalf of Popper and other members of his team.
A spokesperson for NFS said the firm has not yet received notice of the filing, but had this to say in regard to the Brookstreet matter: "Our decision, with respect to margin calls, was entirely appropriate both under the terms of the negotiated agreement, and the circumstances of the market at that time."
According to the claim, NFS "acted irrationally, in bad faith, and fraudulently when it engaged in the wide-scale fire sale, forcing the liquidation of hundreds of millions of dollars of CMOs from Brookstreet customer accounts." (Click here to view Registered Rep.'s August cover story, "Death of a Brokerage," about Brookstreet's demise). If NFS had held off demanding the sale of client CMOs to cover margin debts, says the claim, the value of the assets would have recovered-and Popper and his team would still be raking in $9 million in annual income.
Until last summer, Brookstreet Securities, the Irvine, Calif., firm, was just another independent broker/dealer few people knew about. But it had grown dramatically in recent years to $8 billion in client assets and 680 reps, partly thanks to Popper, who joined the firm in 2004. Popper quickly began making himself, the firm, and presumably clients, millions of dollars by investing in risky derivatives of collateralized mortgage obligations (CMOs). But Popper and other brokers were using as much as 90 percent leverage on the investments-a very risky approach.
Excess leverage wasn't a new strategy for Popper, however, who had been using it for years. It was an approach that eventually made him unwelcome at former employer firms, according to an old boss. (Popper has worked at 18 firms in his 25-year career.) When the credit markets began to quake in the summertime-and the opaque CMOs Popper was leveraging appeared to lose value, according to NFS' third-party pricing model-NFS decided to call in the margin debt. The result was a forced liquidation and collapse of the firm in less than a week. Investigations by the SEC and FINRA into Brookstreet, the Brooks family-the firm's founders-as well as Popper and others, are still ongoing.
Today, Popper and his team-William Betta, Madelyn Betta, Stephanie Dow and Alex Dickson-are registered with Workman Securities in Boca Raton. But according to Florida regulators, Popper is not licensed to sell securities in the state.