JB Oxford Holdings Inc. agreed Monday to sell its discount brokerage business to Ameritrade Holding Corp., raising new questions about the troubled Beverly Hills firm's future.
Ameritrade would buy JB Oxford's 50,000 online brokerage accounts for $26 million. That would leave JB Oxford with just one primary business, processing trades for independent broker-dealers.
That business is clouded by investigations into alleged late trading by an East Coast hedge fund that used JB Oxford's processing services.
Earlier this year, JB Oxford acknowledged in a regulatory filing that if it ended up being charged with wrongdoing and penalized over its role in the mutual fund trading scandal, it might not be able to continue as a "going concern."
With the planned sale to Ameritrade, "it would appear that JB Oxford is effectively divesting its online retail business," said Lloyd Greif, whose Los Angeles-based investment banking firm, Greif & Co., isn't involved in the deal. That, he added, "raises questions about what's next for the company."
JB Oxford officials declined to comment Monday.
The company, which has lost money for 13 quarters in a row, is under investigation by the Securities and Exchange Commission, the U.S. attorney's office and the New York attorney general's office for its connections to the Canary Capital Partners hedge fund.
Canary was accused last year of making improper, after-the-bell fund trades at that day's "stale" prices, rather than the next day's prices as required by law. The civil case brought by New York Atty. Gen. Eliot Spitzer was settled with no admission of guilt on Canary's part.
Oxford's trade-processing unit was mentioned -- though not named as a defendant -- in the Spitzer complaint against Canary, which said JB Oxford had executed some of the late trades for the hedge fund.
Randall Lee, head of the SEC's Los Angeles office, declined to comment on that agency's probe Monday except to say that it was continuing.
In its latest quarterly filing, JB Oxford reiterated that it hoped to resolve the probes and that it would "vigorously defend itself" if charges were brought.
The sale of the online accounts to Ameritrade requires approval by regulators and JB Oxford shareholders. Traders greeted the deal enthusiastically: On Nasdaq, JB Oxford's stock rocketed 82 cents to close at $3.33, while Ameritrade rose 54 cents to $12.83.
Joe Moglia, chief executive of Omaha-based Ameritrade, said Monday that the deal fit his firm's dual strategy of growing "organically" through advertising and through acquisitions as consolidation continues in the online trading business.
Moglia estimated that 200 U.S. companies maintained online trading operations when he took over Ameritrade three years ago, but that number has shrunk to 100.
"You've seen significant consolidation so far, and I think you'll see more," said Moglia, whose firm has made seven acquisitions since early 2001.
Ameritrade, which has 3.4 million customers, is the biggest discount brokerage based on trading activity. Average daily trades in its latest quarter, ended March 26, surged to 212,000, up 82% from a year earlier.
But for JB Oxford, its online brokerage business had become less significant. In the first quarter, the unit generated $31,000 in trading revenue, versus $561,000 a year earlier.
JB Oxford's trade-processing business, meanwhile, generated $559,000, down from $789,000.
About 27,000 of the JB Oxford trading accounts are considered "qualified" by Ameritrade, meaning they are worth at least $2,000. Such accounts generate the lion's share of Ameritrade's revenue.