Stock Clearer Penson Tumbles On Disclosure Of Busted Racetrack Loan, Director Resignation

Tyler Durden's picture

The stock of clearing and settlements firms Penson tumbled and was halted today after it was disclosed that the firm had $42.6 million in receivables collateralized by bonds issued by Retama Development Authority - a Texas racetrack. The problem is that the receivable had moved to a non-accrual category, in other words the collateral is most likely now worthless. What is odd is that the first mention of this appeared three days ago in the risk factors of the company's 10-Q: "With respect to the Nonaccrual Receivables, at March 31, 2011, approximately $42.6 million were collateralized by bonds issued by the Retama Development Corporation (“RDC”) and certain other interests in the horse racing track and real estate project “(Project”) financed by the RDC’s bonds. In each case these are owned by customers and pledged to the Company and/or its affiliates. Certain related parties to the Company own approximately $14.7 million of RDC bonds that are pledged to the Company and/or its affiliates." Since this goes directly to the company's liquidity, it is no surprise that investors decided to shoot first, and not even ask questions.

Subsequently the company was forced to issue press release with which it hoped to put the situation behind it, by which point however the stock was down almost 30% and was subsequently halted: "We believe the activity of the Company's stock related to the Retama related collateral is unwarranted. We hope this news release will aid in putting this issue to rest,” said Philip A. Pendergraft, Chief Executive Officer. "Penson Worldwide remains strongly financed, with ample excess regulatory capital and a solid business, and none of this affects or involves any correspondents or their customers. We continue to move ahead with our 2011 plan, which calls for reducing quarterly losses and generating a small profit (excluding first quarter non-operating items) for the year." One wonders how many of the company's clients will agree with this explanation and continue to clear with the firm. Especially since shortly thereafter in an 8-K the company announced the resignation of the related party Thomas Johnson "based on Mr. Johnson’s position as chief executive officer of Call Now, Inc, a holder of a portion of the Retama related collateral, both Mr. Johnson and the Company felt it appropriate for him to resign his position at this time." It only remains to be seen if there is fire in addition to smoke... And the next question: if Penson falls, what happens to the billions in funds held in client clearing accounts at the small firm.

From the resignation 8-K:

On May 12, 2011, Mr. Thomas R. Johnson delivered notice of his immediate resignation as a member of the Board of Directors of Penson Worldwide, Inc. (the "Company"). Mr. Johnson's resignation was not due to any disagreement with the Company on any matter related to the Company's operations, policies or practices.
Item 7.01 Regulation FD Disclosure.

On May 12, 2011, the Company issued a press release related to disclosure contained in its Form 10-Q, filed with the Securities and Exchange Commission on May 9, 2011. Pursuant to General Instruction B.2 of Form 8-K, all of the information contained in this Item 7.01 shall be deemed to be "furnished" and not "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and, therefore, shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended. Item 9.01. Financial Statements and Exhibits.

Hopefully, unlike Lehman, in a worst case scenario, and downstream consequences can be "contained."

h/t SellPuts

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bob_dabolina's picture

Too bad they don't have access to the discount window.


RED BARRON's picture

People that do not know the first thing about investing, should not be investing.  THEY JNUST DO IT BIGGER IN TEXAS....silver bugs in noetheast

Cdad's picture

Classic criminal syndicate financial services company move!  And when the SHTF, and the price dislocation on the stock is 20%, simply say, "Unwarranted."

This nation is replete with these criminals/idiots.  Good thing there has been no appreciable layoffs in this sector of the job pool.


Scribbles's picture

Perfect. Not only am I down (Thanks mining stocks!), now I have to worry about clearing through this company (


I'm putting all my money in freeze-dried lima beans.

bbq on whitehouse lawn's picture

(the "Company"). Mr. Johnson's resignation was not due to any disagreement with the Company on any matter related to the Company's operations, policies or practices.

We shall see if the company has a disagreement with Mr. Johnson when the checks clear.

lizzy36's picture

Penson is a POS clearing company.

A tiny Canadian start up almost brought them down in the fall of 2008. Hidden trades, parked in inventory and margin calls that go straight to VM (i know kind of the hallmark of the fall of 2008)

Boutique investment dealer Evergreen Capital Partners closed its doors after losing $25-million (U.S.), a loss that could translate into major pain for Penson Financial Services Canada, the company that cleared Evergreen's trades.

Evergreen shut down on Wednesday, and regulators at the Investment Industry Regulatory Organization of Canada are now helping wind down the firm. Evergreen was a tiny dealer, with 16 employees and a focus on financing and trading small-cap energy, mining and technology companies. Sources say the investment dealer had less than $4-million in shareholder equity.

Ultimately Penson lost $33m on the scam.

Seasmoke's picture

and down the stretch they come !

SwingForce's picture

STFU these guys have brains and can trade their way out of anything, you are a horse's ass to post a comment and have no idea who these guys are. To Lizzy, the bigger the loss, the bigger the tax writeoff, at least these guys don't borrow at the fed's takeout window, or get TARP handouts front & backdoor. They live to play another day.

nmewn's picture

"Penson Worldwide is a leading independent execution, clearing, settlement and technology firm servicing the global financial services industry. We provide a range of solutions to help you service your customer and expand your business—all with a "can-do" attitude, deep industry knowledge and a strong desire to partner with our clients."

I didn't know a "can-do" attitude equaled fiduciary responsibility.

Now back to our regularly scheduled programming ;-)

rocker's picture

You mean they are a mini Goldman Shafts.  Like the smart guy above said, to bad they can't acess the window.

nmewn's picture

I think he nailed it.

I'm thinking you and I need to form our own clearing house...maybe Rockewn, seems easy enough ;-)

Goldtoothchimp09's picture

Penson is the most backwater - unprofessional firm i've EVER had contact with. 

I actually just reported them to the SEC on an unrelated matter two months ago.

defn8Dog's picture

The best way to rob a bank is to own one.

max2205's picture

Is it just me or did anyone else notice the shitty stocks are really blasting up. Tide is in and shit floats

Check the new 52 week highs for stocks under $1.00 or even 0.50. MM's might feel like they better reduce their inventory before the SHTF

2007 all over again

slewie the pi-rat's picture

Stock Clearer Penson Tumbles On Disclosure Of Busted Racetrack Loan, Director Resignation


oc's picture

Anybody use Questrade in Canada ? I believe go thru Penson.

Caviar Emptor's picture

Penson clears for Think or Swim

Vecon's picture

They clear for trade king too

linrom's picture

Penson Chief Executive Philip Pendergraft is expected to attend a stock-options industry event Thursday in Savannah, Ga., where some clients are expected to discuss the matter with him.


"I'm reserving judgment until I look him in the eye and see what he has to say about it," said one client, who requested anonymity due to the sensitivity of the issue. "Right now, I don't think it impacts the business they do for us."


In his Thursday statement, Pendergraft called the selloff in Penson shares "unwarranted." The company estimated that the Retama bonds represented just 0.5% of Penson's $8.7 billion in average daily customer balances during the first quarter


CEO has his priorities: stock options. I also like the way he compares apples to oranges - his company's receivables to its liabilities represented by his customers daily float. He must be an accountant.



The Answer Is 42's picture

So, let's see how this could unravel...

Hedge fund clients at Penson withdraw money tomorrow first thing. Wait, they'll have to liquidate first. Oops...

Margin call snow ball bitchez.


Couple this with YHOO's AH slaughter, tomorrow could be an interesting day.

acrabbe's picture

Hmm... I trade OptionsHouse and they clear through Penson. Come to think of it, when I wire funds to my brokerage account, I send them to the Penson Financial Services Account @ JP Morgan. Interesting....

Rhone_Ranger's picture

We need a race track in every town, with dollar admission, dogs, beers everyday!