Sales of risky private placements in Provident Royalties and DBSI Inc. have come back to haunt broker/dealer CapWest Securities, possibly putting its future existence in peril.
As reported April 26 by Investment News, CapWest Securities stated in its latest filing with the Securities and Exchange Commission (SEC) that a number of events – including a rash of lawsuits tied to private placement deals that went south – has “raised substantial doubt” about the company’s ability to meet regulatory net-capital requirements.
CapWest is far from alone. Several other broker/dealers that sold private placements have shuttered in recent months, including QA3 Financial Corp. in February. As a result, regulators are stepping up their oversight of private placements and the broker/dealers that market and sell them to investors.
According to court documents, CapWest brokers sold about $22 million of private placements issued by Provident Royalties LLC. In the summer of 2009, the SEC charged Provident with fraud. CapWest also sold an unknown volume of sales in DBSI Inc., a packager of real estate deals that is now in bankruptcy court.