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TAG | Provident Royalties LLC

Jun/11

8

Provident Private Placement Paper Trail Lands on Fidelity’s Doorstep

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In an article from InvestmentNews.com, June 7, 2011, Bruce Kelly writes that the litigation stemming from a series of oil and gas private placements that failed two years ago have now ensnared a giant in the clearing and custody business, National Financial Services LLC, a unit of Fidelity Investments.

The trustee overseeing the liquidation of assets of Provident Royalties LLC, which the Securities and Exchange Commission charged with fraud in 2009, last month requested that a federal judge in Dallas issue a subpoena to National Financial. In the court filing, the trustee wants access to retirement account documents of clients of four broker-dealers that sold preferred stock of Provident and used National Financial as a clearing firm.

Bruce Kelly writes that dozens of broker-dealers sold the Provident offerings from September 2006 to January 2009, raising $485 million. Regarding National Financial records, the trustee wants documents of 579 clients who bought $39.1 million of Provident from four firms: J.P. Turner & Co. LLC, Milkie/Ferguson Investments Inc.,National Securities Corp. and Securities America, Inc.

A spokesman for National Financial, said the firm typically does not comment on matters involving its correspondent clearing, broker-dealer clients. Clearing firms do not sell securities but rather hold them for broker-dealers and their clients.

The InvestmentNews.com article goes on to say that calling Provident a “massive Ponzi scheme,” the trustee claimed that the “trustee is entitled to information concerning the relationship between the broker-dealers and their respective clearing houses, and how those funds were transferred, paid for and accounted for by the clearing houses,” the court filing stated.

“As custodial fiduciary, [National Financial] should have agreements with the various broker-dealers they did business with and records for every dollar that went through their controlled account,” according to the filing.

Last year the trustee sued dozens of broker-dealers to claw back revenue and commissions from the sale of Provident.

If you feel you have been an alleged victim of these or other broker-dealers and were sold Provident Royalties private placements, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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May/11

26

Wells Fargo, BNY Mellon Corp., Sue Securities America, & other B-Ds over Medical Capital Holdings, Inc.

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In a May 26th., 2011, article from InvestmentNews.com, Bruce Kelly writes, that adding to the cascade of legal troubles for broker-dealers that sold private placements for Medical Capital Holdings Inc., two banks have now sued several independent B-Ds that hawked the failed offerings.

It was reported that the Bank of New York Mellon Corp. and Wells Fargo Bank NA, were trustees for Medical Capital. In fact, both were sued in a class action in 2009 in U.S. District Court for the Central District of California after the Securities and Exchange Commission charged Medical Capital with fraud. But Bank of New York Mellon and Wells Fargo want the broker-dealers to pay up money if they are found liable in those class actions.

On April 29, the two banks filed separate lawsuits against the broker-dealers, including struggling Securities America Inc., claiming that the broker-dealers “breached their obligation to MedCap investors” by selling the product to investors for whom it was not a suitable investment, and failing to make proper disclosure of the notes’ risks. Bank of New York Mellon has sued 13 broker-dealers, seven of which are no longer in business. Wells Fargo has sued six firms, as well as Ameriprise Financial Inc., which owns Securities America, the biggest seller of Medical Capital notes. Not all broker-dealers that sold the product were included in the suit. “We believe the banks’ actions are unwarranted and baseless,” said Janine Wertheim, a spokeswoman for Securities America. “The wrongdoing in this case lies with the principals of Medical Capital, who have been accused of fraud by the SEC.”

Kelly writes that the plaintiffs in the class action against the two banks claimed in a 2010 amended complaint that the two trustees signed off on a request by Medical Capital executives to take $325 million in fees — despite documents for the Medical Capital notes stating that fees were not supposed to come from investor funds. From 2003 to 2008, dozens of independent broker-dealers sold notes of Medical Capital, which raised $2.2. billion. Securities America sold about $700 million of the product and last month agreed to settle with investors who sued the firm in a class action. Investors have lost more than $1 billion in principal, and regulators and the Medical Capital bankruptcy trustees have said the operation was a Ponzi scheme.

The banks’ suits against the B-Ds is at least the third time in the past year that broker-dealers that sold failed private placements or real estate deals have been sued by outside parties such as a trustee or receiver. Last June, the trustee overseeing the receivership of another failed series of private placements, Provident Royalties LLC, sued almost 50 broker-dealers seeking to claw back $285 million, including commissions.

And in November, the bankruptcy trustee for DBSI Inc., which packaged real estate deals and went bust in 2008, sued almost 100 broker-dealers looking to get back about $49 million from the firms.

If you or a family member have become a victim of the alleged fraudulent sale of private placements for Medical Capital Holdings, Inc. by your broker-dealer, call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

28

Do You Have Investments in CapWest Securities, Inc.?

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CapWest Securities Inc. has reported in its recent filing with the SEC that three years of losses, a decline in net capital and many lawsuits — “raise substantial doubt about the company’s ability to continue as a going concern.” CapWest, is owned by Capstone Financial Group, reported a net loss of $109,000 last year on revenue of nearly $3 million.

Many broker-dealers who sold private placements have gone under.

“If, as a result of losses from operations of from litigation, the company were to fail to meet regulatory net-capital requirements, it would be required to raise additional capital to continue operations,” the firm’s management noted in the filing. “Although the company’s parent may assist from time to time with funding for the company, there can be no assurance that the company will be successful in obtaining additional capital on terms favorable to the company, or at all.”

In the court filings it was noted that, CapWest brokers sold around $22 million of private placements issued by Provident Royalties LLC, which the SEC charged with fraud in 2009. CapWest also sold an unknown amount of DBSI Inc., a packager of real estate deals that was popular among independent broker-dealers.

Currently CapWest is working with its insurance company to settle several outstanding legal actions against the firm, and faces other claims in FINRA arbitrations this year. It also faces five pending civil actions in court according to the filings.

If you or a family member bought private-placements with CapWest Securities, Inc., call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

10

Reg D crackdown by FINRA

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As a follow up to our posting from Finra, the following is an article by Bruce Kelly on April 7, 2011, in InvestmentNews.com dealing with the Finra Reg D crackdown. 

Kelly says that Finra has unleashed its first round of fines and sanctions against broker-dealers and executives from firms that sold private placements that have collapsed. In doing so, the industry’s self-regulator cited a lack of due diligence by both firms and executives in selling the high-risk products.

Finra, or the Financial Industry Regulatory Authority Inc. named two series of private placements, notes issued by Medical Capital Holdings Inc. and preferred stock from Provident Royalties LLC, as problematic. Finra imposed the sanctions against the firms and execs for failing to conduct a reasonable investigation of the sale of those products. In 2009, the Securities and Exchange Commission charged both those private-placement sponsors with fraud.

The largest fine — $700,000 — was levied on Workman Securities Corp., which was ordered to pay $700,000 in restitution to clients. InvestmentNews previoulsy reported that sanction.

Finra fined another broker-dealer, Askar Corp., $45,000 for failure to conduct due diligence of private placements from DBSI Inc., a failed real estate syndicator that is now in bankruptcy.

Kelly goes on to say that the firm generated $578,000 in commissions from sales of DBSI’s tenant-in-common exchanges, according to court documents All three products — Medical Capital notes, Provident stock and DBSI tenant-in-common exchanges — were wildly popular products sold by dozens of independent broker-dealers in the last decade. Some of the biggest sellers of the deals, QA3 Financial Corp., GunnAllen Financial Inc. and Okoboji Financial Services Inc., have since shut down, unable to bear the cost of lawsuits stemming from angry clients who bought the products.

Workman’s reps sold a little more than $9 million of Provident Royalties private placements, from last summer in the Northern District of Texas bankruptcy. The amount of Medical Capital notes the firm’s reps sold to investors is not known. Finra specified that the $700K is to go to Workman’s clients as restitution.

Finra’s series of actions,  focused on executives at broker-dealers failing to look into or investigate the private placements their firms sold. The regulator’s crackdown undoubtedly will hit a nerve with many small and midsize independent broker-dealers, many of whom claim they don’t have the resources to investigate the private placements they sell. Instead, the firms tend to rely on outside due diligence professionals, mostly attorneys, to examine and analyze the products. But those due diligence attorneys often take fees to write reports from the product sponsors. Much like sell-side research on Wall Street, the lawyers’ financial relationships with sponsors raises questions about potential conflicts of interest.

Private placements were high-commission products, typically offering reps and advisers a commission of 7% or 8%. Broker-dealers and the executives should have looked at the private-placement offerings much more closely, Brad Bennett, Finra executive vice president and chief of enforcement, noted in a statement.

“Senior officials at these firms failed to fulfill their responsibilities to customers by not conducting reasonable investigations of these unrelated offerings, especially in light of multiple red flags suggesting liquidity concerns, missed interest payments and defaults,” Mr. Bennett stated. “Finra will continue to look closely at sales of both affiliated and unaffiliated private placements to determine whether the selling firms fulfilled their responsibility to customers.”

Finra barred or suspended seven executives as part of its action. Each signed letters of acceptance, waiver and consent, and neither admitted nor denied the findings. The two broker-dealers also signed such letters.

David William Dube, owner of the defunct Peak Securities Corp., was barred.

Timothy Cullum, former CEO of now-defunct Cullum & Burks Securities Inc., was suspended for six months as a principal and fined $10,000. Steven Burks, former president of the B-D, received the same sanction.

Robert Vollbrecht, Workman’s former president, was barred as a principal and fined $10,000.

The InvestmentNew.com article goes on to say that in  addition, two former executives at Capital Financial Services Inc., Jeffrey Lindsey and Bradley Wells, were suspended as principals for six months and fined $10,000 each. Likewise, Jay Lynn Thacker, one-time chief compliance officer at Meadowbrook Securities LLC, which was formerly InvestLinc Securities LLC, was hit with the same suspension and fine.

If you feel you have been a victim of these alleged fraudulent schemes, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

8

Two Firms and Seven Individuals Sanctioned by FINRA for Selling Private Placements Without Conducting a Reasonable Investigation

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WASHINGTON — It was announced today on FINRA’s website that the Financial Industry Regulatory Authority (FINRA)  has sanctioned two firms and seven individuals for selling interests in private placements without conducting a reasonable investigation. The companies whose securities were sold in these private placements were unrelated to the firms and individuals FINRA sanctioned. The companies ultimately failed, resulting in significant investor losses.

 In their article it was announced that FINRA imposed sanctions against the following firms and individuals for failing to conduct a reasonable investigation of the sale of private placements offered by Medical Capital Holdings, Inc. (MedCap) and/or Provident Royalties, LLC.

  • Workman Securities Corp., of MN, was ordered to pay $700,000 in restitution to affected customers. Robert Vollbrecht, Workman’s former President, was barred in any principal capacity, and fined $10,000.
  • Timothy Cullum, former Chief Executive Officer, and Steven Burks, former President, of Cullum & Burks Securities, Inc., of Dallas, TX, a now-defunct firm, were each suspended in any principal capacity for six months and fined $10,000.
  • Jeffrey Lindsey and Bradley Wells, two former executives with Capital Financial Services, Inc., of ND, were each suspended for six months in any principal capacity and fined $10,000.
  • Jay Lynn Thacker, former Chief Compliance Officer for Meadowbrook Securities, LLC (fka Investlinc Securities, LLC), of MS, was suspended for six months in any principal capacity and fined $10,000.
  • David William Dube, former Owner, President, Chief Compliance Officer and Anti-Money Laundering (AML) Compliance Officer of (now-defunct) Peak Securities Corporation, of FL, was barred for failing to conduct adequate due diligence, as well as a failure as AML Compliance Officer to detect, investigate and report numerous suspicious transactions in 10 customer accounts where “red flags” existed.

Additionally, FINRA fined Askar Corporation, of MN, $45,000 for its failure to conduct due diligence on a private placement from DBSI, Inc., another company that defaulted on its obligations. FINRA found that Askar only reviewed the offering documents and sales materials provided by DBSI before approving the product for sale, without independently verifying DBSI’s representations in the offering documents.

 It was reported that FINRA found that broker-dealers who sold the MedCap, Provident and DBSI private placement offerings did not have reasonable grounds to believe that the private placements were suitable for any of their customers. Also, they failed to engage in an adequate investigation of the private placements and failed to establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations. Without performing proper due diligence, the firms could not identify and understand the inherent risks of these offerings. The sanctioned principals did not have reasonable grounds to allow the firms’ registered representatives to continue selling the offerings despite the red flags that existed regarding the private placements.

 Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “Senior officials at these firms failed to fulfill their responsibilities to customers by not conducting reasonable investigations of these unrelated offerings, especially in light of multiple red flags suggesting liquidity concerns, missed interest payments and defaults. FINRA will continue to look closely at sales of both affiliated and unaffiliated private placements to determine whether the selling firms fulfilled their responsibility to customers.”

 In July 2009, the SEC filed a civil injunctive action in federal district court in which it sought, and was granted, a preliminary injunction to stop all MedCap sales. The SEC alleged that MedCap and its executives defrauded investors in MedCap VI by misappropriating approximately $18.5 million of investor funds. The SEC also alleged that MedCap misrepresented that it had never defaulted on or had been late in making interest or principal payments, when in fact, MedCap had defaulted on or was late in paying nearly $1 billion in principal and interest on the notes from its previous Regulation D offerings. The court appointed a receiver to gather and conduct an inventory of MedCap’s remaining assets. The SEC action is pending.

 From 2001 through 2009, MedCap, a medical receivables financing company based in Anaheim, CA, raised approximately $2.2 billion from over 20,000 investors through nine MedCap private placement offerings of promissory notes. MedCap made interest and principal payments on its promissory notes until July 2008, when it began experiencing liquidity problems and stopped making payments on notes sold in two of its earlier offerings. Nevertheless, MedCap proceeded with its last offering, MedCap VI, which it offered through an August 2008 private placement memorandum.

 On July 2, 2009, the SEC filed a civil injunctive action in the Northern District of Texas naming Provident and others, and the Court granted its request for a temporary restraining order and an emergency asset freeze and appointment of a receiver to take control of the entities, and marshal and preserve the assets for the benefit of the defrauded investors. All the named defendants subsequently agreed to the entry of a preliminary injunction, which remains in effect. In March 2010, FINRA expelled Provident Asset Management, LLC from membership for marketing a series of fraudulent private placements offered by its affiliate, Provident Royalties, LLC. (FINRA Case No. 2009017497201.)

From September 2006 through January 2009, Provident Asset Management, LLC marketed and sold preferred stock and limited partnership interests in a series of 23 private placements offered by an affiliated issuer, Provident Royalties. The Provident offerings were sold to customers through more than 50 retail broker-dealers nationwide and raised approximately $485 million from over 7,700 investors. Provident Royalties’ business plan included the acquisition of a combination of producing and non-producing sub-surface mineral interests, working interests and production payments in real property located within the United States. Although a portion of the proceeds of Provident Royalties’ offerings was used for the acquisition and development of oil and gas exploration and development activities, millions of dollars of investors’ funds were transferred from the later offerings’ bank accounts to the Provident operating account in the form of undisclosed and undocumented loans, and were used to pay dividends and returns of capital to investors in the earlier offerings, without informing investors of that fact.

It is noted that FINRA’s investigation of broker-dealers that sold the MedCap, Provident, DBSI and other troubled private placement offerings continues.

If you feel you have been a victim of these alleged fraudulent schemes, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Feb/11

16

Workman’s Security Corporation Reaches Agreement With FINRA

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Workman’s Security Corporation, a broker-dealer that was a prominent seller of high-risk private placements that wound up going bust has almost wiped the slate clean of costly litigation that could have impaired the firm’s financial condition writes Bruce Kelly of Investmentnews in a February 14, 2011, article.

Workman’s reached an agreement with the Financial Industry Regulatory Authority Inc. this month to pay $700,000 for partial restitution to more than a dozen clients who had sued the firm over investments in Medical Capital Holdings Inc. and Provident Royalties LLC — two series of private placements that the Securities and Exchange Commission charged were fraudulent in 2009.

The Medical Capital and Provident deals were widely distributed by dozens of independent broker-dealers, some of which have shut down because they were unable to face the burden of litigation costs.

“Workman views this as a terrific resolution so it can move forward,” said Benjamin Skjold, partner at Skjold Barthel PA and attorney for Workman, which has 171 reps. The firm has “effectively” paid the $700,000 and now turns to face about a half dozen remaining individual securities arbitration claims from clients.

The insurance carrier for Workman’s, Catlin Specialty Insurance Co., has paid $2.3 million to clients who sued the firm, Mr. Skjold said, adding that the process of settlement and restitution took about a year. “We’ve worked diligently internally, with the insurance carrier and with Finra to get claims resolved,” he said.

Workman’s reps sold a little more than $9 million of Provident Royalties private placements, from last summer in the Northern District of Texas. The amount of Medical Capital notes the firm’s reps sold to investors is not known. According to Workman’s profile on Finra’s BrokerCheck system, the firm’s supervision and due diligence when selling Regulation D private placements had big holes.

“The firm failed to have reasonable grounds to believe that a private placement offered by an entity pursuant to Regulation D was suitable for any customer after the firm received red flags that the entity had financial issues and was not timely making interest payments,” Finra alleged. “The firm failed to enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulation and Finra rules in connection with the sale of the private placement offered by the entity pursuant to Regulation D. The firm failed to conduct adequate due diligence of the private placement offered by the entity pursuant to Regulation D.”

James Shorris, executive vice president and executive director of enforcement with Finra, noted that Regulation D private placements and non-traded real estate investment trusts are listed as the first and second areas of focus for Finra, in a meeting of brokerage executives this month in Phoenix. 

Kelly goes on to say in the Investmentnews article that other broker-dealers have not fared well in settling the gusher of litigation that erupted after the SEC charged Medical Capital and Provident with fraud. On Friday, QA3 Financial Corp., another leading seller of Provident deals, submitted a request with Finra and the SEC to terminate it’s license as a broker-dealer (b-d). QA3 and its insurance carrier, also Catlin, had been sparring in court and exchange lawsuits in the past six months about the amount of coverage owed to the firm.

If you feel you have been a victim of the alleged broker-dealer private placement fraudulent schemes of   Workman’s Securities Corp.,or any other broker-dealer, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Feb/11

9

400 reps at failed QA3 Financial Corporation, Searching for New Brokerages

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It was reported by Bruce Kelly for InvestmentNews that four hundred registered reps are scrambling for a new home after learning that their broker-dealer, QA3 Financial Corp., will close at the end of this week

“It’s like a smash and grab for these guys,” said Shawn Smith, principal of Financial Advisor Placement Services, a recruiting firm. “It’s a shame it happened. There’s a lot of good advisers at QA3.”

Smith said some reps had seen the firm’s closing coming and had made contingency plans for finding a new broker-dealer. He added that some reps had formed large “marketing” groups, meaning a group of dozens of reps working under a common banner. Such groups have better leverage in negotiating terms with a broker-dealer and can command a higher payout, he said.

Another recruiter pointed to the fact that the reps should quickly find new firms because they all work with Pershing LLC, the industry’s biggest clearing firm. The use of Pershing “gives the advisers a lot of options and will help them transition without much downtime or service interruption,” said Brad Fay, president of IBD Placement and Recruiting Services.

 Steve Wild, QA3′s owner and CEO, wrote in an e-mail that landed in brokers’ inboxes more than an hour after the market close Friday, “In light of the arbitration award rendered against QA3 on Jan. 14, and the fact that our errors and omissions carrier has not yet provided coverage set forth in our policy, we have made the difficult decision to cease conducting business as a broker-dealer effective as the close of business on Feb. 11.”

QA3, which at its peak did $50 million per year in gross revenue, will be one of the highest-profile independent broker-dealers to exit the business in the past year.

According to InvestmentNews, about two dozen firms last year decided to shut down or were forced to shut down, facing rising legal costs and a tough regulatory environment. According to a number of industry sources, QA3 had been in discussions with other independent broker-dealers about a potential sale of the firm’s assets, but ultimately, a deal failed to materialize.

Mr. Wild, one of the most successful entrepreneurs in the independent-contractor-broker-dealer industry, sold Securities America Inc. to American Express Co. in a time when insurance companies were paying premiums for independent broker-dealers in 1998.

QA3 has been one of the leading sellers of Regulation D private placements in the last decade. Two of those deals, Medical Capital Holdings Inc. and Provident Royalties LLC, face fraud charges from the Securities and Exchange Commission. The firm tried to raise money in 2009, offering Regulation D private-placement notes. According to filings with the SEC, the firm was looking to sell $3 million in debt to complete acquisitions. The commission also indicated that the brokerage had raised no money for the deal as of July 2009.

In September, QA3 claimed it faced bankruptcy because of a dispute with its insurance carrier over the amount of coverage the B-D has for legal claims stemming from its sale of private placements.

QA3 claimed that it has coverage for $7.5 million in legal claims, damages and expenses. Its carrier, Catlin Specialty Insurance Co., said that the coverage is capped at $1 million.

In January, QA3 lost a $1.6 million arbitration award to an elderly couple who invested in real estate deals that went bust. It appears that that decision was the arbitration award to which Mr. Wild was referring in his e-mail to brokers late Friday.

It is noted that the regulators with the Financial Industry Regulatory Authority Inc. have been watching the firm’s levels of net capital quite closely as of late, as losses of securities arbitration claims have to be recorded in a firm’s net capital calculations. According to its 2009 audited financial report, QA3 had $118,000 of excess net capital at the end of that year.

QA3 faces other lawsuits and arbitrations due to different failed private placements.

If you have been a victim of the alleged fraudulent schemes of  QA3 Financial Corporation, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Feb/11

7

QA3 Financial Corp. Facing Backruptcy, Will Close February 11, 2011

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QA3 Financial Corp., facing bankruptcy and a potential net capital violation, told its 400 brokers late last Friday afternoon it will close in a week.

In an e-mail to its brokers in-boxes about an hour after the close
of the market, Steve Wild, QA3’s owner and CEO, wrote: “In light of the
arbitration award rendered against QA3 on January 14, and the fact that our
errors and omissions carrier has not yet provided coverage set forth in our
policy, we have made the difficult decision to cease conducting business as
a broker-dealer effective as the close of business on February 11.”

 A broker with QA3, who declined to be identified, read
the e-mail to *InvestmentNews.*

The broker said that he had recently been a target of recruiters and was
disappointed about the firm’s closing.

According to a number of industry sources, QA3 has been in discussions with
other independent broker-dealers about a potential sale of the firm’s
assets, but ultimately, a deal failed to materialize.

It was noted that Mr. Wild did not return phone calls on Thursday and Friday to comment about the future of the firm.

QA3, which at its peak did $50 million per year in gross revenue, would be
one of the most substantial independent broker-dealers to exit the business
in the past year.

According to *InvestmentNews*, about two dozen firms last year decided to
shut down or were forced to shut down, facing rising legal costs and a tough
regulatory environment.

Mr. Wild has been one of the most successful entrepreneurs in the
independent-contractor broker-dealer industry. In 1998, he sold Securities
America to American Express in a time when insurance companies were paying
premiums for independent broker-dealers. It is not known how much American
Express paid Mr. Wild for Securities America.

QA3 has been unraveling for quite some time. It was one of the leading sellers of Regulation D private placements in the last decade, and two of those deals, Medical Capital Holdings Inc and Provident Royalties LLC, face fraud charges from the Securities and Exchange Commission.

This firm tried to raise money in 2009, offering Regulation D private
placements notes. According to filings with the SEC, the firm was looking to
sell $3 million in debt to complete acquisitions — but also said it had
raised no money for the deal as of July 2009.

In September, 2010, the firm claimed it faced bankruptcy because of a dispute with
its insurance carrier over the amount of coverage that the independent
broker-dealer has for legal claims stemming from its sale of high-risk
private placements.

QA3 claimed that it has coverage for $7.5 million of legal claims,
damages and expenses stemming from the sale of Reg D offerings. Its carrier,
Catlin Specialty Insurance Co., said that the coverage is capped at $1
million.

Then, in January, 2011, QA3 lost a $1.6 million arbitration award to an elderly
couple who invested in real estate deals that went bust. It appears that
decision was the arbitration award Mr. Wild mentioned in his e-mail to
brokers late on Friday.

The Regulators with the Financial Industry Regulatory Authority Inc. have been
watching the firm’s levels of net capital quite closely as of late, as
losses of securities arbitration claims have to be recorded in a firm’s net
capital calculations. According to its 2009 audited financial report, QA3
had $118,000 of excess net capital at the end of last year.

The firm faces other lawsuits and arbitrations due to different failed
private placements.

If you have been a victim of the alleged fraudulent schemes of  QA3 Financial Corporation, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Jan/11

7

2010: Was the year of the battered Broker-Dealer

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In an article in IvestmentNews by Bruce Kelly he writes how scores of broker-dealers were bruised and battered last year, with dozens of small and midsize firms closing their doors amid desperate — and mostly futile — searches for much-needed capital.

The number of broker-dealers, through November, registered with the Financial Industry Regulatory Authority Inc. was 101 below the total at the end of 2009. Since 2005, the broker-dealer community has shrunk by 9% to 4,619. 

By the end of 2009, there were 175 fewer broker-dealers registered with Finra than a year earlier, the self-regulatory agency’s records show. And by the end of 2008, there were 110 fewer than a year earlier.

Even though the steady decline in the net number of broker-dealers is evident in statistics on Finra’s website, the regulator does not detail how many new broker-dealers are registered each year, making it impossible to determine with accuracy how many firms open or close their doors in a given year.

Giant firms have no interest in serving small businesses or small retail investors, some executives said. Owners and executives of small broker-dealers contend that a decline in the number of firms is damaging to the economy and to small investors. Many of these broker-dealers act as engines for local investment banking deals. Small firms also are willing to work with retail investors with small amounts of money — $100,000 for example.

“I’ve been in the business for 45 years and nothing has ever come close to the carnage that’s occurred in our industry,” said Ron Kovack, chairman of Kovack Securities Inc.

Kovack pointed to two types of firms that have recently run aground and been forced to shut down. Some simply cut corners during tough times, leading to bad business practices. Others were shuttered due to minor rule violations that led to staggering legal costs arising from lawsuits and arbitration claims.

“From the number of calls I’m getting from other small-broker-dealer owners, people are getting out,” said Alan Davidson, chief executive of Zeus Securities Inc. and president of the Independent Broker-Dealer Association Inc., an industry group with 250 broker-dealer members.

THE BAD CLIMATE

Davidson goes on to say that regulatory pressures and business conditions — including rising fees and assessments — are pushing broker-dealers to the brink. “The membership is under attack and small firms are taking the brunt,” he said. Mr. Davidson added that according to his research, the number of firms that closed in the past few years totaled 20% of the Finra membership.

In 2010, the net-capital requirements tripped up a number of firms.

Securities and Exchange Commission requires broker-dealers to maintain a certain amount of net capital at all times. The levels, however, vary widely from firm to firm, with many small firms required to have as little as $5,000. Once a firm fails to meet its required net-capital level, it’s at death’s door.

There were two high-profile firms  closed this year due to such violations. GunnAllen Financial Inc., which had been one of the fastest-growing independent broker-dealers of the last decade and at one time boasted 1,000 affiliated registered representatives, was closed in March. Then in June, Jesup & Lamont Securities Corp., a Wall Street mainstay whose corporate lineage dates back to the 19th century, closed due to net-capital violations. At the time the firms closed, GunnAllen had about 500 reps and Jesup & Lamont 300.

So expect more failures and closings this year, industry observers said. “It’s been a horrible market and firms are thinly capitalized,” said Larry Papike, president of Cross-Search, a recruiting firm specializing in independent reps and executives at such firms.

“And then there’s the limited-partnership debacle,” he said, referring to the cascade of lawsuits and arbitration complaints that numerous independent broker-dealers face in the wake of SEC fraud charges against Medical Capital Holdings Inc. and Provident Royalties LLC.

There were dozens of independent broker-dealers sold allegedly bogus private-placement offerings from those firms and now face potential class actions, arbitration complaints from investors, and even lawsuits from receivers in bankruptcy proceedings looking to claw back commissions from broker-dealers.

Liabilities from Medical Capital and Provident sales contributed to the demise of some of the broker-dealers that closed this year. That group includes Okoboji Financial Services Inc., a leading seller of Provident Royalties private placements, which closed last May.

The firm Cullum & Burks Securities Inc., which was heavily involved in the sale of Medical Capital private placements, also shut its doors in 2010.

Call a Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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