Phillippe Diederich for The New York Times
Richard Bove, a bank analyst, is a Rochdale employee.
Hours before Apple announced its earnings late last month, a trader at a small Connecticut brokerage firm placed a bet on the outcome of the technology giant’s results. It was the sort of speculative trade that happens any given day on Wall Street.
But the series of purchases, executed just before the market closed, now threaten to bring down the boutique brokerage firm, Rochdale Securities.
The trader, David Miller, bought roughly $1 billion of Apple stock, a far larger position than Rochdale had ever handled. After the trader bought the shares, Apple — a notoriously volatile stock — dropped in value, costing Rochdale million of dollars.
Mr. Miller and his trades are now under a microscope. Rochdale executives and regulators are trying to determine whether his actions amounted to a trading blunder or market misdeeds.
In the meantime, Rochdale is fighting for its survival. The brokerage firm has reached out to rivals, including BTIG, and ConvergEx, for a potential infusion of capital, according to a person briefed on the talks. But a white knight has not yet materialized.
Sean Gallup/Getty ImagesA trader at Rochdale Securities is said to have purchased about $1 billion of Apple stock without permission.The firm’s president, Daniel J. Crowley, said Tuesday that Rochdale was the “the victim of an unauthorized trade” and was cooperating with regulators. He confirmed that Rochdale was in talks with other brokerage firms. The incident at Rochdale marks the latest in a series of trading mishaps that have rattled Wall Street.
In August, an errant trading algorithm cost the Knight Capital Group $440 million. Regulators also are looking into the issues surrounding the offering of Facebook in May.
“Time and again, we see that the industry is still digesting the lack of human involvement in trading,” said Michael Driscoll, a visiting professor at Adelphi University and a former Wall Street executive. “When these trades go awry, and there is not enough oversight, they can cause a lot of damage very quickly.”
Rochdale is among the dozens of small brokerage firms that operate on a much smaller scale than big names like Morgan Stanley and Goldman Sachs. At Rochdale (pronounced “Rockdale”), Mr. Miller was one of a number of traders who worked on a giant trading floor at the firm’s headquarters in Stamford, Conn. The firm, which was started in 1975, employs about 60 people, including Richard Bove, a well-known bank analyst, who is based in Florida.
Mr. Miller had worked at Rochdale since 2009. A Wall Street journeyman, he previously did stints at a number of small New York broker-dealers, including Ladenburg Thalmann, Punk, Ziegel & Company and M. H. Meyerson. He lives in Rockville Centre, N.Y., on Long Island.
On the afternoon of Oct. 25, Mr. Miller placed a number of trades in Apple in brief succession, according to people briefed on the situation. These trades went through even though they far exceeded the firm’s capital cushion.
At the end of the day, Mr. Miller shut down his computer and left the trading floor, according to people with knowledge of the matter. After Mr. Miller left, he began fielding calls from higher-ups at Rochdale, confused and upset, the people said. Mr. Miller has not returned to the firm.
Realizing something was amiss, Rochdale alerted regulators at the Financial Industry Regulatory Authority and the Securities and Exchange Commission. With Rochdale’s capital depleted from the trade, regulators ordered the firm to immediately unwind the position.
The losses at Rochdale have crippled the small brokerage firm. The firm has a capital cushion of only about $3.5 million supporting its operations. Theories are now circulating inside Rochdale about what went wrong.
Some potential investors in Rochdale were told that the errant purchases were the result of a “fat finger.” That is, the trader intended to buy 165,000 Apple shares but the order was executed at 1.65 million shares.
Regulators are trying to determine Mr. Miller’s motives and how he was able to execute the trade at all. Rochdale typically trades on behalf of clients. But Mr. Miller made the bet using the firm’s own capital, making the Apple purchase all the more unusual. Brokerage firms like Rochdale are also required to have systems in place to prevent outsized or unauthorized trades.
“I worked at some of the biggest trading desks — Bear Stearns, Credit Suisse, Smith Barney — and no one took a position that big without getting prior approval,” said Mr. Driscoll. “It’s inconceivable that someone would be able to acquire a position of that magnitude at a small firm like Rochdale without anybody in a supervisory capacity knowing about it.”
Because of an editing error, an earlier version of this article misstated when Daniel Crowley, the president of Rochdale, said that his firm was "the victim of an unauthorized trade." He said it in a phone interview on Tuesday, not Monday.