Omni Brokerage Inc. is the latest broker/dealer to go out of business. The Utah-based B-D, which is facing $2.8 million in claims for selling DBSI tenant-in-common (TICs) exchanges, says its shuttering is tied to lack of business, not legal issues.

However, Omni is at the center of several arbitration claims filed by investors with the Financial Industry Regulatory Authority (FINRA) over failed DBSI deals. As reported in a June 2 story by Investment News, a lawsuit filed by DBSI trustee James Zazzali says Omni generated $271,000 in commissions from pitching the DBSI TICs.

Omni joins dozens of other broker/dealers that sold failed private placements issued by Medical Capital Holdings Inc. and Provident Royalties LLC and, as a result, have gone out of business. As of March 2010, a total of 16 broker/dealers have closed their doors.

DBSI was a leading packager of tenant-in-common exchanges. TICs are a form of real estate ownership in which two or more parties have a fractional interest in a property.

DBSI began to default on its payments to investors in 2008. The firm later filed for Chapter 11 bankruptcy protection.

In December 2010, the trustee for the DBSI bankruptcy sued more than 90 broker/dealers that sold the failed product, including Omni.

According to the Investment News story, the DBSI trustee claims that TICs from DBSI were actually part of a $600 million Ponzi scheme. A similar allegation has been waged against Medical Capital Holdings and Provident Royalties.

Sales of private placements in Provident Royalties have put yet another broker/dealer of business. Securities Network LLC of Norcross, Ga., told the Financial Industry Regulatory Authority (FINRA) in March of its plans to terminate its broker/dealer license.

As reported May 24 by Investment News, Securities Network was not a huge seller of private placements in Provident Royalties. According to a court filing, the company sold $215,000 of Provident’s preferred stock to investors.

The amount is minuscule compared to that of other firms that marketed and sold hundreds of millions of dollars of the product. In total, independent broker/dealers sold about $485 million of Provident private-placement offerings.

The list of broker/dealers that have shut down because of connections to sales involving Provident private placements, as well as another private-placement deal – Medical Capital Holdings – keeps getting bigger. Among the broker/dealers to shutter: GunnAllen Financial Inc., QA3 Financial Corp., Okoboji Financial Services, and Jesup & Lamont Securities Corp.

In 2009, the Securities and Exchange Commission (SEC) charged both Provident Royalties and Medical Capital Holdings with fraud. In its complaint against the two companies, the SEC alleged that both operated as Ponzi schemes.

In the wake of investor lawsuits over private placements in Medical Capital Holdings and Provident Royalties LLC, the Securities and Exchange Commission (SEC) is considering changes to its offering rules to make it easier to purchase non-public company shares. In addition, the SEC also is looking into whether it should revisit the current ban on public marketing of non-registered offerings as part of an overall review of securities-offering regulation.

As it is, private placements, also known as Regulation D offerings, are exempt from SEC registration. In the past year, the deals have come under increased scrutiny from regulators – with much of the attention generated by failed deals in Medical Capital Holdings and Provident Royalties. In 2009, the SEC charged both entities with fraud.

As reported May 10 by Investment News, in addition to possible changes in the ban on soliciting investors for non-registered offerings, the SEC is examining various restrictions on communications in initial public offerings, the thresholds that trigger public reporting and other regulatory questions that new capital-raising strategies create.

The SEC’s review comes on the heels of a proposal by the Financial Industry Regulatory Authority (FINRA) for a 15% cap on commissions and fees for private placements, as well as more disclosures about offering proceeds.

According to SEC Chairman Mary Schapiro, about 22% of the SEC’s enforcement cases in 2010 year involved investor fraud from securities offerings.

Plagued by legal woes involving private-placements sales in Medical Capital Holdings and Provident Royalties, Securities America may soon have a new owner. As reported April 25 by Investment News, parent company Ameriprise Financial is looking to sell the troubled independent broker/dealer.

“In reporting its first quarter financial results this afternoon, Ameriprise management said it was looking to shed Securities America – the 17th largest independent broker-dealer in the industry according to Investment News data, which it acquired in 1998. Ameriprise indicated the potential sale of the firm would not have an impact on its $150 million settlement with investors suing the firm over private placements that have gone bust,” the article said.

In recent months, sales of private placements have been under the microscope by the Financial Industry Regulatory Authority (FINRA). Evidence of the new scrutiny became apparent in early April, when FINRA imposed fines and disciplinary actions against a number of firms that sold investments in Medical Capital Holdings and Provident Royalties.

FINRA’s disciplinary actions focused on the failure of broker/dealers to investigate the private placements being sold by their firms. Both Medical Capital and Provident Royalties were charged with fraud by the Securities and Exchange Commission (SEC) in July 2009.

Private placements are high-commission products, oftentimes producing hefty fees and commission for broker/dealers of up to 8%.

Broker/dealers involved in sales of private placements have been put on notice by the Financial Industry Regulatory Authority (FINRA). In the future, the regulator says it will be stepping up its oversight of private-placement deals.

Evidence of the new scrutiny became apparent last week, when FINRA imposed fines and disciplinary actions against a number of firms that sold investments in Medical Capital Holdings and Provident Royalties.

As reported April 10 by Investment News, FINRA’s recent actions focused on the failure of broker/dealers to investigate the private placements being sold by their firms. Both Medical Capital and Provident Royalties were charged with fraud by the Securities and Exchange Commission (SEC) in July 2009.

Private placements are high-commission products, yielding broker/dealers fees of 7% or 8%.

“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,” said Brad Bennett, executive vice president and chief of enforcement for FINRA.

“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. Broker-dealers and the executives should have looked at the private-placement offerings much more closely,” Bennett said.

A deal may in the works between Securities America and investors who lost hundreds of millions of dollars from soured private-placement deals in Medical Capital Holdings and Provident Royalties. The story was first reported by Investment News on March 28.

Financial problems related to investor lawsuits in the private placements have been a growing source of concern for the broker/dealer. Now, it appears a settlement offer could be on the table.

Details of the offer have not been revealed.

Securities America sold about $400 million in private placements in Medical Capital Holdings. In July 2009, the Securities and Exchange Commission (SEC) charged the company with fraud, accusing it of essentially running a Ponzi scheme. That same month, the SEC also charged Provident Royalties with fraud.

Earlier this month, a federal judge denied a proposed $21 million settlement between Securities America and the plaintiffs in the case. If the settlement had occurred, investors would likely have received only pennies on the dollar.

And while Securities America may not have enough capital to pay plaintiffs 100 cents on the dollar, its parent company, Ameriprise, does.

As reported in the Investment News article, Securities America has reportedly informed its 1,800 brokers of the proposed settlement.

Private-placement deals pushed by Securities America in Medical Capital Holdings and Provident Royalties have left investors stranded on a financial limb. Now, they have a new worry – and that is whether to resolve their complaints through arbitration or roll their claims into two existing class-action lawsuits again Securities America.

Ewald Groetsch is one of those investors facing such a dilemma. As reported March 4 by the New York Times, Groetsch lost $500,000 after investing in Medical Capital Holdings which, like Provident Royalties, was charged with fraud by the Securities and Exchange Commission (SEC) in 2009.

According to the New York Times story, Groetsch – who suffers from dementia – became lonely after his wife died in 2003 and struck up a relationship with a broker from Securities America. Groetsch eventually put the majority of his portfolio into a risky security – i.e. Medical Capital.

As for the Securities America broker, he portrayed the investment as “safe and secure.” That wasn’t the case, however, and Groetsch ultimately lost his entire investment.

Groetsch has since filed an arbitration claim with the Financial Industry Regulatory Authority (FINRA).

The lawyers in the class-action case involving Medical Capital and Provident Royalties contend that investors’ arbitration claims could threaten the financial position of Securities America and its ability to pay for a proposed settlement. The plaintiffs’ lawyers disagree, stating that such reasoning is misleading.

Earlier this year, arbitration proved successful for at least one investor who sued Securities America. In January, FINRA awarded Josephine Wayman nearly $1.2 million for her claim against the broker/dealer.

Embattled broker/dealer Securities America was handed a legal victory today when a federal judge decided to combine private-placement claims involving Medical Capital Holdings and Provident Royalties with two class actions.

As reported Feb. 18 by Investment News, Judge W. Royal Furgeson Jr. ordered Securities America to create a $21 million settlement fund for investors who are suing the broker/dealer in the two class actions. The ruling is seen as a victory for Securities America because it limits the company’s liability in the private-placement arbitration cases.

Securities America, which is owned by Ameriprise Financial Inc., sold about $700 million of private placements issued by Medical Capital Holdings and $18 million of shares in Provident Royalties.

Judge Furgeson has placed a temporary restraining order on three Financial Industry Regulatory Authority (FINRA) claims against Securities America. The investors who’ve filed those claims are seeking $4.8 million in damages for buying private placements issued by Medical Capital and Provident, both of which were sued by the Securities and Exchange Commission (SEC) for fraud in July 2009.

If you have suffered investment losses in Securities America and wish to discuss filing an individual arbitration claim with FINRA or have questions about these investments, pleasecontact us.

Sales of private placements in Provident Royalties has gotten yet another broker/dealer in hot water. This time, it’s National Securities Corp., with the broker/dealer facing disciplinary action by the Financial Industry Regulatory Authority (FINRA) over sales of private placements gone bad.

As reported Feb. 17 by Investment News, National Securities says it received a Well Notice from FINRA in January. Receipt of a Well Notice indicates enforcement action on the part of a regulator is likely imminent.

National Securities sold approximately $3.7 million of private placement issued by Provident Royalties. In July 2009, the Securities and Exchange Commission (SEC) sued Provident for fraud.

According to FINRA’s Broker Check Web site, National Securities received the Wells notice for violations of product suitability rules, e-mail supervision rules, and standards of commercial honor and principles-of-trade.

Earlier this month, another broker/dealer, Workman Securities Corp., also was in the news over private-placement sales involving Provident Royalties and Medical Capital Holdings. In a settlement with FINRA, Workman agreed to pay $700,000 for partial restitution to more than a dozen clients who had sued the firm over investments in the two companies.

Like Provident, Medical Capital was charged with fraud by the SEC in July 2009.

If you have suffered investment losses in  and wish to discuss filing an individual arbitration claim with FINRA or have questions about these investments, pleasecontact us.

Workman Securities, a big seller of private placements in Medical Capital Holdings and Provident Royalties, has reached an agreement with the Financial Industry Regulatory Authority (FINRA) to settle issues over the deals. The broker/dealer will pay $700,000 for partial restitution to more than a dozen clients with legal claims against Workman for sales of the risky investments involving Med Cap and Provident.

Both Medical Capital and Provident Royalties were charged with fraud by the Securities and Exchange Commission (SEC) in the summer of 2009.

As reported Feb. 14 by Investment News, Workman’s insurance carrier, Catlin Specialty Insurance Co., has paid $2.3 million to various clients who’ve sued the firm.

Workman Securities is one of many broker/dealers that sold investors on risky private-placement deals involving Medical Capital and Provident Royalties. Workman reps sold just over $9 million of private placements in Provident, according to U.S. bankruptcy court filings.

According to FINRA’s Broker Check Web site, Workman allegedly was lacking in the supervision and due diligence department at the time it sold the private placements.

“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,” the site alleges.

Broker Check goes on to say: “[Workman] 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.”

If you have a story to tell involving Medical Capital Holdings or Provident Royalties, please contact a member of the securities fraud team at Maddox, Hargett & Caruso.