Category Archives: Provident Royalties

Apparently short on cash, broker/dealer Capital Financial Services is trying to combine 36 separate investor arbitration claims and lawsuits as part of a class action settlement. The claims are tied to private-placement sales totaling millions of dollars in Provident Royalties.

As reported Jan. 23 by Investment News, a federal judge recently issued an order stating that all arbitration claims and lawsuits against Capital Financial Services would be halted until he decided if they should all become part of a single class action lawsuit.

Combining the pending litigation, which involves sales by broker/dealers of Provident Royalties LLC private placements, could save them millions of dollars in damages and legal fees, according to the Investment News story.

Capital Financial is among several broker/dealers named in the class action, Billitteri v. Securities America Inc. Other defendants listed include National Securities, Next Financial Group and QA3 Financial Corp.

The lawsuit itself was filed in the summer of 2009, after the Securities and Exchange Commission (SEC) charged Provident Royalties with fraud and allegedly running a Ponzi scheme. According to the SEC’s complaint, Provident sold $485 million in securities and developed a wide network of independent broker/dealers to pitch the investments to investors.

Court documents show that Capital Financial is facing 36 separate legal cases from investors who bought almost $11.9 million in Provident Royalties private placements.

As it is, however, Capital Financial may have little money for legal fees and claims. According to court filings, its assets include $1.4 million of insurance and $120,000 in excess net capital, totaling $1.52 million. That means Capital Financial has about 12 cents per dollar available for clients who have sued the firm or plan to.

Arguments for and against combining the arbitrations and other lawsuits against Capital Financial are scheduled to be heard at a hearing in April.

If you’ve suffered financial losses of $100,000 or more in PRovident Royalties or Securities America and believe those losses are the result of inadequate information on the part of your broker/dealer, please Contact Us.

Private placement investments in Medical Capital Holdings and Provident Royalties have caused financial devastation for hundreds of investors after the deals later soured and the companies issuing the securities went belly up. Now, several independent broker/dealers that sold the products to investors are facing financial issues of their own.

As reported Jan. 17 by Investment News, QA3 Financial Corp. is one of those broker/dealers. The story says QA3 is looking at bankruptcy because of a dispute with its insurance carrier over the amount of coverage available for legal claims stemming from private placement sales in Medical Capital and Provident Royalties.

According to the article, QA3 claims it had coverage for $7.5 million of legal claims, damages and expenses, while its carrier, Catlin Specialty Insurance Co., said the coverage is capped at $1 million.

A lawsuit filed in September states that QA3, which includes about 400 independent representatives and advisers, is facing bankruptcy because of its issues with Catlin. Catlin later sued QA3, claiming that private-placement claims under the policy were, in fact, limited to $1 million. That suit is pending.

Like a number of broker/dealers that sold private placement in Medical Capital and Provident Royalties, QA3 is facing a slew of arbitration claims filed by clients who suffered huge financial losses in their investments when the companies were sued by the Securities and Exchange Commission for fraud. Today, both Medical Capital and Provident Royalties are in receivership.

In the case of Medical Capital, Securities America was a top seller of Med Cap private placements. QA3 was a leading seller of Provident deals. By some estimates, QA3 sold $32.6 million in Provident notes, reportedly collecting almost $7 million in commissions.

Soured private-placement deals left dozens of broker/dealers in dire straits this past year, forcing many to close their doors entirely. As reported Jan. 2 by Investment News, the broker/dealer community has shrunk by 9% since 2005 to 4,619. Through November 2010, the number of broker/dealers registered with the Financial Industry Regulatory Authority (FINRA) was 101 below the total at the end of 2009.

The reasons behind the decline vary. Bad business practices over private placements tied to such firms as Medical Capital Holdings and Provident Royalties led several broker/dealers to bite the dust in 2010. Others closed down because of capital-requirement violations. And some went out of business due to soaring legal costs associated with investor lawsuits.

In March 2010, GunnAllen Financial, which at one time had 1,000 affiliated registered representatives, closed its doors because of net-capital violations. Several months later, Jesup & Lamont Securities Corp. followed suit.

Meanwhile, a slew of broker/dealers that allegedly sold private-placement offerings from the now-defunct firms of Medical Capital Holdings and Provident Royalties are the subject of class actions and arbitration complaints from investors. Okoboji Financial Services, a top seller of Provident Royalties’ private placements, closed its doors last May.

One month later, Dallas-based Cullum & Burks Securities, a leading seller of private placements in Medical Capital Holdings, also shut down its business.

More failures and business closings of independent broker/dealers are predicted in 2011.

“It’s been a horrible market and firms are thinly capitalized,” said Larry Papike, president of Cross-Search, a recruiting firm specializing in independent representatives and executives at such firms, in the Investment News article.

Private-placement sales in Provident Royalties LLC have come back to haunt many once-successful broker/dealers. The Securities and Exchange Commission (SEC) charged Provident with civil fraud last summer, accusing the company and various top executives of operating a $485 million Ponzi scheme allegedly involving phony oil and gas securities.

Fifty broker/dealers that sold private placements in Provident are now being sued by Provident’s trustee, Milo H. Segner Jr. At the same time, hundreds of investors have filed arbitration claims with the Financial Industry Regulatory Authority (FINRA).

As reported July 11 by Investment News, many broker/dealers facing Provident-related lawsuits appear to have dangerously low net-capital positions – a fact that could put them in peril if they eventually pay out large legal claims over soured Provident deals.

“Broker-dealers facing millions of dollars in lawsuits could be in a world of hurt,” said Carrie Wisniewski, president of B/D Compliance Associates, in the Investment News article. “It’s a big problem,” she said.

One of the broker/dealers named in the trustee’s June 21 lawsuit is Capital Financial Services. It had only $390,000 in excess net capital at the end of 2009. The firm also has at least nine pending arbitration claims against its president, Brian Boppre, totaling $10.8 million in damages.

Next Financial Group also is a big seller of Provident private placements. It had $3.1 million in excess net capital at the end of last year, including $1.1 million reserved to pay contingent legal liabilities, according to Investment News.

Violation of the SEC’s net-capital requirement can signal the end of a broker/dealer. The Provident case – and the resulting legal claims it produced – has pushed many broker/dealers to the breaking point. Okoboji Financial Services, the fifth-largest seller of the Provident private placements, said in May it was closing up shop. Okoboji reportedly had excess net capital of $32,048 at the end of 2009, but made no provisions for legal liabilities.

GunnAllen Financial got caught up in a similar situation. A leading seller of investment deals in Provident Royalties, the broker/dealer closed in March when its available capital fell below the amount needed to adhere to industry rules. At least 10 other firms that sold private placements in Provident Royalties, as well as in Medical Capital Holdings, have shuttered recently because of net-capital issues.

If you are a retail or institutional investor and sustained investment losses related to Provident Royalties, contact our securities fraud team. We can evaluate your situation to determine if you have a claim.

At least 12 broker/dealers that sold private placements issued by Provident Royalties LLC are now either out of business or no longer sanctioned by the Financial Industry Regulatory Authority (FINRA). As reported June 30 by Investment News, the 12 firms in question sold $56.7 million of Provident offerings.

In July 2009, the Securities and Exchange Commission filed a lawsuit against Provident Royalties, charging the company and its founders with fraud. From 2006 to 2009, Provident sold $485 million of private placements through a number of broker/dealers throughout the country.

Those same broker/dealers are now facing a slew of arbitration claims and lawsuits from investors who lost millions of dollars on the Provident deals, as well as on other private-placement offerings, including those from Medical Capital Holdings.

Last month, the trustee in the Provident case, Milo H. Segner Jr., filed a complaint against 49 broker/dealers, alleging they “failed miserably in upholding their fiduciary obligations” when selling a series of Provident Royalties private placements. In total, the lawsuit lists 61 firms that sold investment offerings in Provident.

Investment News provided a list of broker/dealers with problems connected to sales of Provident private placements. Among the broker/dealers on the list:

• AFA Financial Group LLC – AFA sold $2.5 million of Provident private placements; in April, the broker/dealer said it was closing its business due to overwhelming legal and insurance costs.

• Barron Moore Inc. – The Financial Industry Regulatory Authority (FINRA) expelled Barron Moore in June 2008 over penny stock sales. The company sold $205,000 in Provident private placements.

• Community Bankers Securities LLC – Community Bankers ceased its affiliation with FINRA in December 2009. It sold $2.8 million in Provident private placements.

• Empire Financial Group Inc. – FINRA expelled Empire in March 2009 for failing to pay unknown fines and/or costs. Empire sold $2.8 million in Provident placements.

• Empire Securities Corp. – FINRA suspended Empire Securities in May 2010 for failing to pay arbitration fees. Empire Securities sold $205,000 in Provident private placements.

• ePlanning Securities Inc. – The company withdrew from FINRA in February 2009. It sold $3.8 million in Provident placements.

• GunnAllen Financial Inc. – GunnAllen was shut down in March 2010 when it failed to meet FINRA’s net-capital requirements. It sold $22.3 million in Provident private placements.

• Jesup & Lamont Securities Corp. – The broker/dealer closed its doors in June 2010 after failing to meet FINRA’s net-capital requirements. It sold $100,000 in Provident private placements.

• Main Street Securities LLC – The firm withdrew its registration from FINRA in November 2009. It sold $205,000 in Provident private placements to investors.

• Okoboji Financial Services – In May 2010, Okoboji filed forms with both FINRA and the SEC to withdraw its registration as a broker/dealer. Okoboji sold $21.9 million in Provident private placements.

• Private Asset Group Inc. – FINRA suspended Private Asset Group in May 2010 for failing to pay arbitration fees of $2 million.

• Provident Asset Management – On March 18, FINRA expelled Dallas-based Provident Asset Management for marketing a series of fraudulent private placements offered by its affiliate, Provident Royalties, in a massive Ponzi scheme. Provident Asset sold $50,000 in Provident private placements.

Forty-nine broker/dealers have been named in a lawsuit involving sales of Provident Royalties private placements. The lawsuit, which was filed June 21 by the trustee now overseeing Provident – Milo H. Segner Jr. – charges the broker/dealers of failing to uphold their fiduciary obligations when selling a series of Provident Royalties LLC private placements.

The lawsuit hopes to recover $285 million in claims and commissions from the firms named in the lawsuit. As reported June 29 by Investment News, the leading sellers of the private placements in Provident Royalties were Capital Financial Services, with $33.7 million in sales; Next Financial Group, with $33.5 million; and QA3 Financial Corp., with $32.6 million.

Investment News provides a complete list of the broker/dealers named in the lawsuit, as well as the commissions they collected.

“The commissions, fees and payments received from Provident Royalties encouraged and played a substantial role in the negligent and/or grossly negligent conduct of the broker-dealers,” according to the lawsuit.

In July 2009, the Securities and Exchange Commission (SEC) filed a fraud lawsuit against Provident Royalties and several high-ranking executives for running an alleged $485 million Ponzi scheme tied to fake oil-and-gas investments. From June 2006 to January 2009, many independent broker/dealers sold private placements in Provident to some 7,700 investors.

Sales of private placements in Provident Royalties LLC have come back to haunt broker/dealer Okoboji Financial Services. On May 28, the Iowa-based company filed notice with the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) of its intent to withdraw as a broker/dealer. Investment News first reported the story on June 2.

Last summer, the SEC brought a fraud lawsuit against Provident Royalties and its related funds and business entities. In the complaint, the SEC charged Provident with selling fraudulent private-placement offerings from September 2006 through January 2009. According to the SEC, Provident raised $495 million from at least 7,700 investors throughout the country.

Okoboji Financial also is named in the SEC’s lawsuit for having received a 5% payout in connection to selling Provident notes. As reported in the Investment News article, Okoboji was fined $30,000 by FINRA in 2009 for selling private placements to prospective investors with whom neither the firm nor its representatives had a pre-existing relationship.

In March 2010, Okoboji Financial lost a $978,000 arbitration claim over unsuitable structured settlements, according to records with FINRA.

In April, a lawsuit was filed in federal court in South Dakota involving an Okoboji representative who sold private placements in Provident and Medical Capital Holdings to 87-year-old Thelma Barber. As in the Provident case, the SEC charged Medical Capital Holdings with fraud in July 2009. It is now under a court-appointed receiver.

Broker/dealer GunnAllen Financial may be getting ready to file Chapter 11 bankruptcy protection, according to an April 21 story in Investment News. If that happens, hundreds of investors with pending arbitration claims against the embattled company will have to get in line for GunnAllen’s remaining assets, including any insurance policies.

In late March, the Financial Industry Regulatory Authority (FINRA) closed the doors on GunnAllen because the company had fallen below minimum capital rules set by federal regulators. GunnAllen’s financial troubles, however, have been ongoing for some time because of lawsuits from investors who say they were defrauded by various GunnAllen brokers.

Many of the lawsuits concern former GunnAllen broker Frank Bluestein, who allegedly operated a multimillion-dollar Ponzi scheme.

GunnAllen also faces lawsuits tied to sales of private placements in Provident Royalties LLC. In March, FINRA expelled Provident Asset Management, LLC for allegedly marketing a series of fraudulent private placements offered by Provident Royalties in a massive Ponzi scheme.

As reported in the Investment News article, if GunnAllen does, in fact, file for Chapter 11 bankruptcy, the value of its insurance policies will be critical to any investor suing the broker/dealer.

If you are a client of GunnAllen, tell us about your situation by leaving a message in the Comment Box below or via the Contact Us form.

Private placement offerings and leveraged ETFs (exchange-traded funds) are among the investments that con artists turn to as a way to scam innocent victims. Private placements in particular have been in the news lately, with their issuers – i.e. Medical Capital Holdings and Provident Royalties – accused of committing fraud.

As reported April 9 by CNBC, it’s become increasingly commonplace for investors to find themselves a victim of an investment scam or con. According to the North American Securities Administrator Association (NASAA), senior citizens are the No. 1 target for fraud, with baby boomers ranking a close second. In 2008, the FBI estimated that some $40 billion was lost to securities and commodities fraud.

In addition to private placement offerings, leveraged ETFs rank high in terms of potential abuse for fraud. While legitimate financial products, ETFs are complicated investments that trade on a daily basis. ETFs use exotic financial instruments, including derivatives, to generate better returns than the market return. This potential volatility, along with the increased exposure to risk, may make ETFs an unsuitable investment for most retail investors.

The best way to prevent fraud is to do your homework. If you suspect a deal is too good to be true, contact your state securities regulator. You also can find out if the person selling the offering or investment is registered with the Financial Industry Regulatory Authority (FINRA) on FINRA’s BrokerCheck Web site.

Another red flag to be aware of: Guarantees of a high rate of return on unregistered securities.

Private placements, which have made news in connection to Medical Capital Holdings and Provident Royalties, are becoming an increasingly questionable investment for ordinary investors.

Private placements are securities in stocks, bonds or other instruments that a corporation issues to investors. The investments are riskier than traditional securities because many of the issuing companies don’t have to register their placements with the Securities and Exchange Commission (SEC).

Former schoolteacher Adrianne Cross found this out the hard way. According to a March 27 article in the Wall Street Journal, Cross, 64, invested her life savings in private placements. She thought the investments were safe. Now she’s lost everything.

According to the Wall Street Journal, Cross’ broker worked for Ameriprise Financial’s Securities America unit in Los Angeles. Cross says the broker persuaded her to invest more than $1 million in private-placement securities issued by Medical Capital Holdings and Provident Royalties LLC in 2007. The broker allegedly told Cross that the investments were a safe alternative to stocks.

The Securities America broker was wrong. Both Medical Capital and Provident Royalties, which face fraud charges by the SEC, collapsed in 2009. For Cross and thousands of other investors, it meant their investments became essentially worthless.

Cross has since filed an arbitration claim with the Financial Industry Regulatory Authority (FINRA) in an attempt to recover her losses.

In January, Massachusetts’ Secretary of State William Galvin brought the first state enforcement case against Securities America over the broker/dealer’s sales practices of Medical Capital securities. According to the complaint, Securities America’s representatives failed to disclose the risks to customers, many of whom were retirees.

If you have a story to tell involving Medical Capital Holdings, Securities America and/or Provident Royalties, please contact a member of our securities fraud team.