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Private Placements Shutter Another B-D

Sales of private placements have caused the undoing of another broker/dealer. On April 13, after losing an arbitration claim in March for $1.5 million, Cambridge Legacy Securities LLC filed its withdrawal request with the Financial Industry Regulatory Authority (FINRA). Several days later, the B-D proceeded to seek bankruptcy protection.

As reported April 24 by Investment News, a three-member FINRA arbitration panel had previously awarded investor Marvin Blum $445,000 in compensatory damages, $900,000 in punitive damages, $150,000 in attorneys’ fees and $12,000 in costs, as well as interest.

Blum, who was more than 70 years of age at the time he purchased the investments, was sold nine different private placements over 13 months totaling $500,000, according to the Investment News story.

Cambridge Legacy Securities is owned by The Cambridge Legacy Group. According to FINRA’s Broker Check Web site, the company’s chief executive, O. Ben Carroll, is the subject of an investigation by FINRA for failing “to have reasonable grounds to believe that the private placements offered by Cambridge Petroleum Group and Cambridge Legacy Group pursuant to [Regulation D] were suitable for any customer.”

In 2010, FINRA fined Carroll $25,000, as well as suspended his privilege to act as a principal for three months. He no longer is registered with FINRA.

Cambridge Legacy Securities also is no longer in business. However, an affiliated RIA, Cambridge Legacy Advisors, is, according to the Investment News story.

Failed private-placements deals have forced a number of broker/dealers to shutter their businesses over the past year. Much of the demise stems from sales involving private placements issued by Medical Capital Holdings; preferred stock investments sponsored by Provident Royalties LLC; and tenant-in-common exchanges that were manufactured by DBSI, Inc.

In July 2009, the Securities and Exchange Commission (SEC) charged both Medical Capital and Provident Royalties with fraud. On Nov. 8, 2010, DBSI filed for bankruptcy. Since then, many investors have filed arbitration claims with FINRA against the various broker/dealers that sold them the failed products.

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