The Financial Industry Regulatory Authority (FINRA) is examining and investigating broker-dealers involved with retail sales of private placement interests and those affiliated with private placement issuers.
The first result of this initiative was announced last week with the expulsion of Dallas broker-dealer Provident Asset Management, LLC. The expulsion of this firm is stated to be "for marketing a series of fraudulent private placements offered by its affiliate, Provident Royalties, LLC, in a massive Ponzi scheme." The firm is settling with FINRA without admitting or denying the allegations.
According to FINRA, this particular broker-dealer engaged in misrepresentation to investors leading them to believe that their investments were going to oil and gas investments and exploration. In fact, the funds were funneled to an affiliate to make dividend payments and principal return to other investors.
FINRA has deemed this to be a "classic Ponzi scheme" and is continuing to review private placement issuers and sales across the country for compliance with suitability, supervision and advertising rules.
The initiative was prompted by increased investor complaints as well as Securities and Exchange Commission actions stopping the sale of particular private placement offerings.
In this case, the expelled entities raised over $480 million through approximately 7,700 individual investments made by thousands of investors. Investors had been promised an 18% return. FINRA is also investigating broker-dealers across the country that sold Provident and other private placement offerings.
The SEC had already filed for injunctive relief last year in the Northern District of Texas naming Provident Asset Management, Provident Royalties among other entities. In that action, the SEC sought a temporary restraining order and an emergency asset freeze as well as the appointment of a federal equity receiver to take control of the entities and preserve their assets for the benefit of the defrauded investors.
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To learn more about broker-dealer status, go to the broker-dealer check service at FINRA.
Contact New York City's Gusrae, Kaplan, Bruno & Nusbaum, PLLC for counsel with significant expertise and experience in representing and advising brokers and dealers in compliance, as well as in enforcement and regulatory matters.
