Since you’re going to write about us (Soleil) its important that you get the facts correct. For starters, we currently partner with 30 research analysts and employ 30 research salespeople and 11 sales and execution traders. Those numbers will continue to climb as we execute on our growth strategy. Additionally, there are some assertions you make that we believe are unsubstantiated

Regarding the new management team, you are incorrect to suggest that there has been significant turmoil and turnover. The former COO became President in May and the firm back-filled the COO position. The new Head of Sales and new CIO replaced no one. They are new positions. Again, all part of a growth strategy. The firm has seen only two voluntary departures during the last six months and has added eight new employees during the same period. I wouldn’t classify that as “turmoil”. The Board of Directors and existing shareholders continue to be very supportive of the firm, its management team, and Soleil’s vision. The firm’s balance sheet is very solid, affording the management team considerable flexibility.

Your comments suggest that the Soleil business model is questionable, particularly in this difficult market environment. We think you are 180 degrees off point. In fact, it is Soleil’s flexible business model that gives the firm great staying power in difficult markets and tremendous leverage in good markets. If you are questioning the viability of the Soleil model then you must be questioning the viability of the considerably less flexible, traditional cash equities models. You also suggest that the Soleil franchise would be “more valuable” if the analysts were employees. We disgree with this assertion. The assets of any agency platform are it’s people. Analysts can leave franchises at will, regardless of employment/contractor status. Franchise value is not determined by the tax status of the particpants. It is determined by the inherent leverage in the business model, the capacity to grow, and the attractiveness (to clients) of the firm’s offering. We believe Soleil represents an attractive value on all three fronts.

You also bring up the issue of counterparty risk. Interestingly, Soleil has been experiencing an increase in the number of accounts exploring trading relationships with our firm. The demise of several large investment banks (low-risk counter-parties?) has convinced many of our clients that they need to have more trading partners, rather than fewer, in order to diversify their counterparty risk. For those clients, Soleil is a natural fit.

One area where we actually agree is the market environment. You bet, it is difficult. The institutional client is struggling and that is bad news for sell siders and vendors who service those clients. No one knows where the bottom lies but its probably fair to say that 2009 will be a difficult year for the industry.

Terry Gardner
President, Soleil Securities