Another small broker-dealer has been driven out of the business by litigation costs resulting from the sale of allegedly fraudulent private placements in the oil and gas sectors for Provident Royalties LLC, according to a report from Investment News.
Last month, Boogie Investment Group Inc. of Melbourne, Fla., filed a request with the Financial Industry Regulatory Authority, or FINRA, to withdraw as a broker-dealer.
Boogie Investment, which sold about $410,000 in Provident notes, wasn’t a major player in these securities, but it is the 20thbroker-dealer among those caught up in Provident’s alleged fraud that has either exited the brokerage business, or intends to exit, according to an Investment News report that obtained information from documents filed in U.S. Bankruptcy Court in Dallas.
Provident is in bankruptcy and the website of its liquidating trust shows that a total of 52 broker-dealers are enmeshed in litigation stemming from sales of the oil and gas private placements. The pace of closures among them seems to be accelerating. Ten firms who sold the allegedly fraudulent securities exited the broker-dealer business thus far in 2011. In 2010, the number was five, and four Provident-involved broker-dealers called it quits in 2009.
Provident Private Placements Fraud Folds Firms
Besides Boogie Investment, firms that folded this year include the Workman Securities Corp. earlier this month, WFP Securities Corp. and Investlinc Securities LLC/Meadowbrook Securities LLC in August, and CapWest Securities Inc. in July.
The Provident private placements wiped out investors as well as damaged broker-dealers. In 2009, the Securities and Exchange Commission, or SEC, charged Provident with three counts of fraud, as well as unjust enrichment.
What Happened with Provident?
Between 2006 and 2009, Provident raised $485 million from 7,700 investors through these placements. Although investors were told their money would be invested in oil and gas exploration and development ventures, it was co-mingled with other investment monies and some was paid out in “dividends” or “returns on capital” to earlier investors, according to the SEC complaint.
The SEC securities fraud action is ongoing in the U.S. District Court for the Northern District of Texas. Provident’s bankruptcy resulted in the company being placed in receivership, according to the firm’s website.
In addition, one of Provident’s owners, Joseph Blimline, pleaded guilty to fraud this August in federal court in Dallas.
The 52 broker-dealers are left to deal with a horde of complaints, almost all of them filed in the Northern District of Texas. The lawsuits were brought by investors angry over Provident and other private deals that failed. Hundreds of millions of dollars evaporated.
According to Investment News, bankruptcy court filings reveal the broker dealers firms facing consequences for selling Provident and other private placements and the amounts involved.
Well-known broker-dealer GunnAllen Financial Inc. closed in March 2010 after failing to meet FINRA’s net-capital, and Okoboji Financial Services Inc., another big name, filed forms with FINRA to exit the business in July 2010. These two were the fourth and fifth biggest sellers of the Provident products, pushing $22.3 million and $21.9 million respectively.
In April, AFA Financial Group LLC announces it was closing because of steep legal and insurance costs. AFA sold $2.5 million of Provident private placements. Community Bankers Securities LLC opted out of the brokerage business in December 2009 after selling $2.8 million in Provident products, and Empire Financial Group Inc. was expelled by FINRA in March 2009 for failing to pay fines after the broker-dealer sold $2.8 million in private placements.
FINRA suspended the Private Asset Group Inc. in May 2010 for failing to pay arbitration fees after it sold $2 million in private placements, and Provident Asset Management was expelled in March after selling $50,000 in oil and gas private placements that promised annual returns of 18 percent.
Aside from the enormous costs of litigation, counsel for Boogie Investment, the broker dealer that recently exited the business, said the cost of FINRA regulation also contributed to his client’s demise. Alan Wolper told Investment News said it was a bigger problem for his client than the Provident lawsuits.
Boogie Investment’s revenue for the fiscal year ended in June was $422,000, down from $1.2 million in 2008, as shown by SEC filings.
According to Investment News, the broker-dealer is facing a class action brought by the Provident trustee and a complaint from individual investors who bought Provident products, as well as three non-Provident related arbitrations.
Some broker-dealers involved in the Provident mess have moved to settle with the Provident trustee, according to Investment News. For example, this month Investors Capital Corp settled the claims against it for selling $3.4 million in the private placements. The terms of the settlement were confidential.
Data compiled from the Provident’s liquidating trustee web site as well as FINRA public disclosures shows the following firms have exited the brokerage business in the last few years.
Name of Company and date of withdrawal
- Workman Securities Corp. – 10/1/2011
- United Equity Securities LLC – 10/1/2011
- Boogie Investment Group Inc. – 9/1/2011
- WFP Securities Corp. – 8/1/2011
- Investlinc Securities LLC/Meadowbrook Securities LLC – 8/1/2011
- CapWest Securities Inc. – 7/1/2011
- Securities Network LLC – 5/1/2011
- Harrison Douglas Inc. – 5/1/2011
- Matheson Securities LLC – 3/1/2011
- QA3 Financial Corp. – 2/1/2011
- Okoboji Financial Services Inc. – 7/1/2010
- Private Asset Group Inc. – 6/1/2010
- Jesup & Lamont Securities Corp.- 6/1/2010
- GunnAllen Financial Inc. – 4/1/2010
- Main Street Securities LLC – 3/1/2010
- Community Banker Securities LLC – 12/1/2009
- E-Planning Securities Inc. – 4/1/2009
- Empire Financial Group Inc. – 3/1/2009
- Barron Moore Inc. – 7/1/2008
Guiliano Law Group
The practice of Nicholas J. Guiliano, Esq., and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.