John Muir & Co., a Wall Street brokerage firm beset by lawsuits and investigations, is considering going out of business, sources disclosed today.
The firm, which has a major office in Washington, has sought help from the New York Stock Exchange, which in turn has contacted a number of major firms about the possibility of taking over Muir's 80,000 accounts. The NYSE said in an official statement: "The firm has come to us for help."
Raymond L. Dirks, the normally ebullient and accessible Muir general partner, was not taking telephone calls. Dirk took control of the then drifting 73-year-old firm five years ago and set its aggressive new course.
One top broker at Muir said the management itself was unclear about the firm's future. "Dirks doesn't even know enough to tell us," claimed this broker, who asked not to be named. "I don't know if I'm going to get paid on Friday. I'm trying to tell my clients not to panic, but we haven't been told what to do."
One knowledgeable source said that Muir executives told the NYSE of their problems on Friday and that attorneys for both sides met over the weekend to seek a solution. The Securities and Exchange Commission, which for months has been investigating the firm, reportedly joined the discussions today.
During the past 18 months, Muir has brought out an amazing 43 new stock offerings in mostly tiny, untested companies. Muir's aggressive sales team then sold the shares to the public.
But recently, several of those companies have had to scale back optimistic sales predictions made in stock offering prospectuses and in Muir literature. As a result, investors in a number of the companies have named Muir in class-action lawsuits that allege the stock offering prospectuses were fraudulent.
According to an NYSE spokesman, Muir claimed it needed help from the exchange because its business had taken a nosedive after a number of key salesmen had quit as a result of the bad publicity that accompanied the lawsuits.
But several sources familiar with Muir's operations claim that Muir's net capital had fallen below the level required by the SEC and the NYSE.
If Muir is forced into liquidation and its customers suffer losses, those losses are insured to a limit of $100,000 worth of securities by the Securities Investor Protection Corp (SIPC).
But the NYSE, which only recently concluded an audit of Muir and reportedly found nothing amiss, has in the past favored protecting client firms by having a strong firm take over a weak one rather than risk bad publicity for Wall Street.
According to several sources, the Muir situation came to a head because the firm has been caught with a large inventory of unsold new issues. Sources say this happened because many of the companies underwritten by Muir have performed badly.
Other sources claim that the SEC has been investigating reports that large portions of the new issues that reportedly were sold to the investing public were actually "parked" with firms friendly to Muir. This allowed Muir to report that it had been successful in selling the new issue.
Dirks, in an interview last month, denied knowledge of any parking operation.
Dirk himself claimed to have plowed back $2.5 million into the firm. Another major investor in Muir is Carl Lindner, the chief executive of the Cincinnati conglomerate, American Financial Corp. Dirks said Lindner lent the firm $2.5 million at a 30 percent annual interest rate. A spokesperson for Lindner today said, "We have no comment on that at all."
Under Dirks, Muir has hired several important analysts, including the respected publishing analyst John Morton, who is based in Muir's Washington office.
Morton said today that about a month ago he had "feared that troubles were coming," and he moved his four-person operation away from the Muir's offices in Georgetown. Morton said that he would be in New York Tuesday seeking to affiliate his service with another firm.
Dirks, who is 47 years old, is a former insurance analyst who in 1973 exposed the $2 billion fraud at Equity Funding Corp. of America.