Blackwood Inc., the former direct-access broker that filed for bankruptcy on April 30, is getting mixed customer-service reviews from some of its ex-clients. Portland, Maine-based Pearl Investments says that it had to scramble to find a last minute trading-platform replacement, because Blackwood -- its broker -- led the firm to believe that it was going to remain in the broker/dealer business. But New York City-based Orbit II Partners, an options-market-making firm and former Blackwood client, claims Blackwood provided good customer service throughout its Chapter 11 filing.
In last week's WS&T Week, Craig Schlifstein, the founder and chief strategist at Blackwood, said that customers were properly informed about Blackwood's decision to cease the operations of its NASD-broker/dealer unit -- Blackwood Securities -- via its bankruptcy filing. Moreover, Schlifstein also said Blackwood offered to assist clients that wanted to transfer their direct-access-brokerage business to Jefferies & Co., a New York City-based institutional-brokerage firm. In fact, he said some clients had accepted Blackwood's offer and made a seamless transition to Jefferies.
However, Dennis Daudelin, president of Pearl Investments, says that his firm -- a proprietary hedge fund which started using Blackwood's direct-access platform last fall -- was never given an option to shift its brokerage account to Jefferies. Moreover, he says that Pearl only began to learn about Blackwood's troubles in late April, via rumors it saw on a trading Web site called elitetrader.com. "We were trying to get information on what was going on. We tried reaching people (at Blackwood), but could not get anybody," says Daudelin. "We finally did reach somebody at the company, who told us that things were going fine and everything was okay. But a couple of days later, our trading system stopped working. We just could not log in (that) morning and use the system."
Specifically, Daudelin says that glitch occurred on April 23. "We did not reach anybody at Blackwood until about noon. So instead of 8:00 a.m., it was noon that we started trading," he says. Then, on April 24, Daudelin recalls, Blackwood officials told him that the firm had sold its broker/dealer business, and that their direct-access platform would have to be temporarily shut down to accommodate a "broker-ID change." But he was also assured that, post-acquisition, Blackwood's direct-access platform would be up and running, and everything would be back to normal.
"Their financial-operations manager, James Wong ... told me that Jefferies was going to acquire (Blackwood's broker/dealer) business," says Daudelin. "We were told that they were just going to talk to each ECN to have their account numbers changed, so that their new name would be reflected. And we were told they could not do any trading until then. They said, 'give us a couple of days to do that and then you'll be back live again' .... We were told all of this on Wednesday, April 24. But we never heard anything more from them about going directly to Jefferies, or that the sale did not happen, or anything of that nature."
Schlifstein retorts that Pearl's "operations people" were definitely notified about Blackwood's Chapter 11 decision. Moreover, he says the firm was given a chance to shift its brokerage business to Jefferies. "They were informed, prior to us shutting down the broker/dealer, that we were going to shut it down, and that they did have the option of transferring their account to Jefferies," he asserts.
Blackwood, says Schlifstein, also told Pearl that firms that made the transition to Jefferies would not have access to all of Blackwood's execution destinations -- including some ECNs -- on day one of their migration. Rather than not being provided the option to shift to Jefferies, Pearl made a strategic choice not to migrate to the broker's platform because it lacked connectivity to certain ECNs, says Schlifstein.
However, a source familiar with Blackwood's day-to-day operations says the firm definitely did not give customers "enough advance notice" about its decision to close the doors on its broker/dealer business. What's more, this source says that Blackwood lacked the organization to provide its customers with proper customer service. "Disorganization was the rule (at Blackwood), not the exception. Clients never knew who the correct people were to talk to about back-office, technical and development issues," the source says.
Daudelin concurs with the source, but Rob Newhouse, chief technology officer at Orbit II Partners, says that Blackwood provided "very good" customer service throughout its bankruptcy ordeal. Noting that Orbit II had used Blackwood's direct-access platform for roughly one year prior to Blackwood's Chapter 11 filing, Newhouse says that Blackwood kept his firm posted on its plans and offered Orbit II the option to make the jump to Jefferies.
"I don't believe I was notified prior to the actual declaration of bankruptcy ... (but) the morning they declared bankruptcy they called me within the hour," he says. "It was not ideal. Obviously, I wish that they were still in business and had not gone bankrupt. But did they give us enough advance notice? Sure. They gave me more than enough time to really do what I needed .... From the customer service standpoint, they were very good. Our contact at Blackwood, our account manager, called me constantly to explain what was going on and let me know what my options were."
Blackwood is now in the process of trying to reinvent itself as a technology vendor. Schlifstein says the firm has already agreed to license its direct-access software to a "major international bank," but declines to specify that firm.