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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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