Investor Lawyers Blog

Former Deloitte Tax LP Partner’s Wife Settles Insider Trading Charges for $1M

Published on: November 8, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission says that Annabel McClellan has settled for $1M insider trading allegations that she and her husband gave relatives confidential information about merger deals. Annabel is the wife of Arnold McClellan, who used to be a partner at Deloitte Tax LP where he was head of the mergers and acquisitions teams.

If a federal judge approves the securities fraud settlement, the SEC will dismiss the claims against Arnold. By agreeing to settle, Annabel is not denying or admitting to the securities charges.

Per the SEC, Annabel used confidential information that she got from her husband to tip her brother-in-law James Sander and her sister Miranda. These family members then allegedly used this knowledge to make trades before the transactions (usually involved pending acquisitions and mergers) were announced to the public. This allowed them to make millions in illicit profits.

In addition to the civil penalty, Annabel has agreed to permanent enjoinment from violating Securities Exchange Act of 1934’s Section 10(b) and Rule 10b-5 thereunder. She also earlier pleaded guilty to obstructing the SEC’s probe into the insider trading scam after admitted to making false statements related to the investigation. Annabel maintains that her husband knew nothing about her activities.

The McClellans were charged with insider trading by the SEC last year following a parallel probe by the Commission, the Financial Services Authority (FSA), the Department of Justice (DOJ, and the Federal Bureau of Investigation (FBI). According to the SEC’s complaint, at least seven times between 2006 and 2008, Arnold McClellan revealed confidential information to his wife, who then passed on what she knew to Miranda and James in London.

James, who owns a trading company, would then buy derivative financial instruments. He also took financial positions in US companies that were acquisition targets. When Arnold would find out that some of the deals were not certain, James would liquidate his positions. The Commission says that the trades were closely timed with phone calls made between the two sisters, as well as in-person visits between the couples. By 2008, James allegedly made over £1.5 million from the tips and his financial firm’s clients and colleagues made over £10 million.

Insider Trading
Insider trading hurts the stock market, affects investor confidence, and causes financial harm to the companies whose confidential information was used to benefit a few. Insider trading is a breach of fiduciary duty or another kind of relationship of confidence and trust. The person tipping, the one being tipped, and anyone who has access to the insider information that makes the trade can be charged with insider trading.

Read the SEC Complaint Against the McClellans, SEC
Wife of former Deloitte partner to pay $1 million, SFGate, October 18, 2011
FSA, SEC and DoJ investigation leads to two people being charged by the SEC with insider dealing in the U.S., Financial Services Authority, December 1, 2010

More Blog Posts:
Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011
Dallas Mavericks Owner Mark Cuban’s Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 28, 2011
Insider Trading: Former FrontPoint Partners Hedge Fund Manager Pleads Guilty to Criminal Charges, Institutional Investor Securities Blog, August 20, 2011 Continue Reading ›

Texas Securities Fraud: SEC Moves to Freeze Assets of Stewardship Fund LP

Published on: November 5, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has gotten emergency order to freeze the assets of James G. “Jay” Temme and Stewardship Fund LP, which he owns. Both are accused of Texas securities fraud, including making false statements to investors that their money was being used to purchase and restructure pools of home mortgages that weren’t performing.

Since 2008, Temme, a Texas resident, and his company allegedly obtained at least $35M from investor groups. At least 31 entities and individual investors were involved in about 16 partnerships. Investors were those who had obtained interests in limited partnerships purportedly set up to invest in non-performing residential mortgages and real properties. Temme allegedly gained their trust by cultivating relationships with others that would vouch for him.

The SEC says that Temme would tell investors that the money was going toward buying “tapes” of nonperforming mortgages. The nonperforming mortgages were then supposed to be turned into performing loans. The buys were supposedly obtained at a discount and returns were to be either determined by principal plus interest payments from homeowners or from the reselling of the underlying properties or mortgages.

Unfortunately, contends the Commission, some of the mortgages that Temme claimed to own were not his. He allegedly generated false documents, issued financial transactions that were not authorized, used the money of new investors to pay off those that had invested earlier, and falsely promised certain investor groups that loans were bought on their behalf. He and Stewardship have also been accused of telling investors that the money that was used to compensate other investors instead going into the purchase of certain properties or mortgages.

Previous attempts to freeze Temme’s assets in the past were reportedly disregarded by him, and he would set up other bank accounts and seek funds from other investors even as others filed securities fraud cases against him. Allegations against Temme and Stewardship include failure to pay promised returns, not properly advising investors about their investments, misappropriating of investor funds, and misrepresenting how the investment proceeds were to used.

The SEC is charging Securities Exchange Act of 1934 and Securities Act of 1933 antifraud provisions. It is seeking:

• Preliminary injunction • Final judgment that includes the permanent enjoining from future violations of the federal securities laws • Financial penalties • Disgorgement of ill-gotten gains
• Prejudgment interest
Read the SEC Complaint

SEC Wins Asset Freeze in Alleged Mortgage Restructuring Scheme, Bloomberg, October 18, 2011

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Money Laundering Charges Filed Against of Houston Criminal Defense Lawyer Accused of Defrauding Defendants of Over $1M, Stockbroker Fraud Blog, October 28, 2011
Houston Judge Overturns $9.2M Securities Fraud Ruling Against Morgan Keegan, Stockbroker Fraud Blog, October 11, 2011
Dallas Mavericks Owner Mark Cuban’s Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 18, 2011 Continue Reading ›

Banco Espirito Santo S.A. Settles for $7M SEC Charges Alleging Violations of Investment Adviser, Broker-Dealer, and Securities Transaction Registration Requirements

Published on: November 5, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Without denying or admitting to wrongdoing, Banco Espirito Santo S.A. a banking conglomerate based in Portugal, has consented to pay nearly $7M in disgorgement, prejudgment interest, and civil penalties to settle Securities and Exchange Commission allegations that it violated securities transaction, investment adviser, and broker-dealer registration requirements. The bank has also agreed to a bar from future violations, as well as an undertaking that it pay a minimum interest rate to US clients on securities bought through BES.

According to the SEC, between 2004 and 2009 and while not registered as an investment adviser or broker-dealer in the US, BES offered investment advice and brokerage services to about 3,800 US resident clients and customers. Most of them were immigrants from Portugal. Also, allegedly the securities transactions were not registered even though they did not qualify for a registration exemption.

The SEC says that by acting as an unregistered investment adviser and broker-dealer BES violated sections of the Exchange Act and the Advisers Act. The bank violated the Securities Act when it allegedly sold and offered securities in this country without registration or the exemption.

The SEC says BES used its Department of Marketing, Communications, and Customer Research in Portugal to send out marketing materials to clients outside the country. Customers in the US ended up getting materials not specifically designed for US residents. BES also worked with a customer service call center to service its US customers. Via phone, these clients were offered securities and other financial products. The representatives were not registered as SEC broker-dealers and had no US securities licenses even though they serviced US clients. US Customers were also offered brokerage services through ESCLINC, which is a money transmitter service in Rhode Island, Connecticut, and New Jersey. ESCLINC acted as a contact point for the investment and banking activities of BES’s US clients.

Registration Provisions
The SEC has set registration provisions in place to help preserve the securities markets’ integrity as well as that of the financial institutions that serve as “gatekeepers,” said SEC New York regional office director George S. Canellos. He accused BES of “brazenly” disregarding these provisions.

State securities laws and US mandate that investment advisers, brokers, and their financial firms be registered or licensed. You should definitely check to make sure that whoever you are investing with or seeking investment advice from his properly registered. It is also important for you to know that doing business with a financial firm or a securities broker that is not registered can make it hard for you to recover your losses if that entity were to go out of business and even if the case is decided in your favor (whether in arbitration or through the courts.)

More Blog Posts:

EagleEye Asset Management LLC Sued by SEC and CFTC for Alleged Forex Trading Scam, Stockbroker Fraud Blog, September 28, 2011

Dblaine Capital, LLC Faces SEC Securities Fraud Charges

Published on: October 31, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging Dblaine Capital, LLC and owner David B. Welliver with securities fraud. According to its complaint, Welliver and the investment advisory firm got $4m in loans as a result of a quid pro quo deal that was undisclosed, improper, and violated their responsibilities to the fund. In return, DBlaine Capital and Welliver allegedly agreed to put the funds ‘assets in specific “alternative investment” securities. By placing the fund’s assets in a private placement offering connected to the lender, this caused the fund to violate a number of policies and investment restrictions.

Per the Commission, Dblaine Capital and Welliver placed their own financial interests first and that the two of them also defrauded the Fund by giving an inaccurate valuation for the private placement holding. This caused the shares of the fund to be offered, sold, and redeemed at an inflated net asset value.

Upon discovering that that the private placement had no value, Welliver and DBlaine Capital allegedly kept this information from shareholders. They are also accused of making misleading and false statements in filings and reports submitted to the SEC, participating in prohibited affiliated transactions, and violating a number of policies and restrictions governing the Fund and its investments that were explicitly included in offering materials.

Per Fund polices, the private placement should have been at fair value, yet the Commission says that between December 2010 and July 2011, DBlaine Capital and Welliver did not attempt to figure out that was and chose to value the private placement at acquisition cost. Also, per the SEC, Welliver used $500,000 of the $4 million in loans that DBlaine Capital obtained to cover his personal expenses, including a motor vehicle, expensive purchases, his son’s college education, back taxes, home improvements, and a vacation.

The SEC wants disgorgement of ill-gotten gains, permanent injunction, prejudgment interest, and civil penalties. It is accusing both Dblaine Capital and Welliver of violating the:

• Securities Act of 1933 • Securities Exchange Act of 1934 • Investment Advisers Act of 1940 • Investment Company Act of 1940
Unfortunately, securities fraud committed by broker-dealers and investment advisers can cause investors, shareholders, and others to suffer financial losses. Not only can this be grounds for civil action by regulators, but also victims of this type of fraud may be able to file their own claim seeking to recover what they’ve lost.

Results show that retaining the services of an experienced securities fraud attorney rather than attempting to file your claim on your own increases your chances of recouping your losses. The securities arbitration system can be a complex area to navigate and there is no reason why you should have to do this alone.

SEC Charges IA Arrangement Illegal, BNA Securities Law Daily, October 27, 2011
SEC CHARGES DAVID B. WELLIVER AND DBLAINE CAPITAL, LLC, WITH FRAUD AND OTHER VIOLATIONS, SEC, October 18, 2011

More Blog Post:
EagleEye Asset Management LLC Sued by SEC and CFTC for Alleged Forex Trading Scam, Stockbroker Fraud Blog, September 28, 2011
California Insider Trading Charges Filed by SEC Against Ex-Investment Fund Associate Accused of Making 3000% Profit on Marvel Call Options in Disney Acquisition, Stockbroker Fraud Blog, August 23, 2011
Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal, Institutional Investors Securities Blog, October 20, 2011 Continue Reading ›

MF Global Holdings Ltd. Files for Bankruptcy While Its Broker-Dealer Faces Liquidation and Securities Lawsuit by SIPC

Published on: October 31, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In U.S. Bankruptcy Court in Manhattan, MF Global Holdings Ltd. has filed for Chapter 11 bankruptcy. The holding company for broker-dealer MF Global Inc., which faces liquidation, has listed assets of $41 billion and debt of $39.7 billion.

This is the fifth-largest financial industry public company bankruptcy when measured according to assets. Larger ones were those involving Lehman Brothers Holdings Inc., Conseco Inc., CIT Group Inc., and Washington Mutual Inc. Per BankruptcyData.com., of any public company, it is the eight largest bankruptcies by assets.

Meantime, the Commodity Futures Trading Commission and the Securities and Exchange Commission says that they were notified by MF Global Holdings Ltd. that there might be some deficiencies with certain customer accounts. The regulators are trying to determine whether approximately under $700 million has gone missing.

in U.S. District Court in Manhattan, Securities Investor Protection Corp. is suing MF Global. SIPC wants the united liquidated for the protection of customer assets. Because MF Global is a broker-dealer, it cannot seek bankruptcy protection and either has to liquidate or sell its assets. Sale negotiations have faltered. Potential buyers had included Jeffries & Company and Interactive Brokers. The latter was about to seal the deal but backed out after finding out about the missing monies.

Jon Corzine, who was the former co-chair of Goldman Sachs Group Inc. (GS), runs MF GLOBAL INC. . It owns $6.3 billion of Portuguese, Italian, Irish, Belgian, and Spanish debt. Worries that in light of Europe’s debt crisis it might lose money on the holdings, regulators urged it to raise capital, issue margin calls, make credit downgrades, and file for bankruptcy, which was ultimately determined to be the safest course of action for customers’ protection.

The CFTC reports that as of the end of August, MF Global had $7.2 billion of customer funds in segregated accounts. The broker dealer of equity, derivatives, commodities, and foreign exchange belongs to over 70 financial exchanges and was one of the main dealers allowed to trade US government securities with the New York Fed.

For now, Corzine and MF Global have not been accused of any wrongdoing. Regulators are still trying to determine whether sloppy internal systems caused the money from client accounts to become misallocated or if something more intentional was at play. While it isn’t rare for some funds to be MIA when a financial firm falters, the mount of money missing from the broker-dealer is disturbing.

Unsecured creditors for MF Global include JPMorgan ( less than $80 million of the debt), Headstrong Services LLC, ($3.9 million) , Sullivan & Cromwell LLP ($596,939), CNBC (845,397), Bloomberg Finance LP ($276,064), and Oracle Corp. (302,704).

Related Web Resources:
Regulators Investigating MF Global for Missing Money, NY Times, October 31, 2011

Corzine’s B-D could be liquidated, Investment News, November 1, 2011

More Blog Posts:
Shareholder Securities Lawsuit Against China North East Petroleum Holdings Ltd., is Dismissed by District Court, Institutional Investor Securities Blog, October 30, 2011

Money Laundering Charges Filed Against of Houston Criminal Defense Lawyer Accused of Defrauding Defendants of Over $1M, Stockbroker Fraud Blog, October 28, 2011

UBS Fined $12M for Supervisory Failures and Regulation SHO Violations in Securities Short Sales, Institutional Investor Securities Blog, October 25, 2011

FINRA Vows to Step Up Internal Compliance Procedures

Published on: October 30, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed an administrative complaint against the Financial Industry Regulatory Authority accusing one of the latter’s directors of changing three sets of staff meetings minutes that SEC officials had requested. These revisions made the documents, which were delivered in August 2008, incomplete and inaccurate. This could affect FINRA’s chances of becoming the SRO for investment advisers. Currently, FINRA serves that role for just broker-dealers.

It was FINRA that reported the document problem to the Commission and then worked with the agency to resolve the matter. The SRO then appointed new leadership in the Kansas office (the director has since resigned) where the tampering took place and implemented changes that improved procedures for document handling. Modifications included more live and online ethics training, as well as greater document integrity. Other undertakings FINRA has agreed to:

• Train workers about past document integrity problems • Create a podcast on document integrity to show current and prospective employees • Talk about the importance of document integrity at yearly regulatory meetings, townhall gatherings, and at Senior Management onsite visits at district offices • Mandate that senior Office of Liaison and Counsel meet with every business that is about to undergo an on-site exam before the documents are generated for the SEC

Shareholder Securities Lawsuit Against China North East Petroleum Holdings Ltd., is Dismissed by District Court

Published on: October 30, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In re China North East Petroleum Holdings Ltd. Sec. Litig., a shareholder complaint against China North East Petroleum Holdings Ltd., (NEP), has been dismissed by the U.S. District Court for the Southern District of New York. The court found that the plaintiffs had not sustained economic losses because of the alleged misrepresentations made by the company. Judge Miriam Goldman Cedarbaum said that this was enough grounds for dismissal.

This is the first shareholder lawsuit dismissed against a U.S.-listed Chinese reverse merger company. An attorney for China North says the case outcome is a reaffirmation that despite “innuendo,” many of these companies are legitimate and have every right to be part of the US markets.

Meantime, the attorney for lead plaintiff Acticon AG, in disagreeing with the Court’s ruling, that the decision rested on issues not connected to the sufficiency of allegations of Defendants’ fraudulent misconduct but on whether the plaintiff sustained damages. He believes that the Court misapplied Dura Pharmaceuticals in holding that a short term recovery of the share price after the class period can negate a claim that a Plaintiff sustained economic loss.

Acticon filed its putative class action against China North last year contending that the company had overstated oil reserves and reported earnings (by over $36 million) and failed to account for significant losses. It was just in February 2010 that the company announced that people should not rely on its financial statements for the year ending Dec. 31, 2008 and the first three quarters 2009. Following that announcement, there were numerous director and executive resignations and replacements made.

Per the shareholder lawsuit, Acticon bought about $60,000 China North shares during the class period of 5/15/08-5/26/10 in a number of installments. The court said that Acticon kept the shares for months even though it could have sold them and even after there had been a final allegedly corrective disclosure that was put out in September of last year. It also said that a plaintiff that decides to not take the opportunity to sell at a profit after a corrective disclosure cannot later say that the disclosure caused the later loss of devaluation. For example, Acticon didn’t sell after a 12-day period when China North’s shares closed higher than the average price that it had paid for the shares.

There has recently been an increase in federal securities lawsuits filed against companies with significant operations in the People’s Republic of China that can be found on US Exchanges. The Securities and Exchange Commission also has identified substantial accounting irregularities among these companies, which have applied the reverse merger strategy to join the US markets.

Victory in fraud lawsuit for Chinese company, China Daily, October 27, 2011

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Ex-Lehman Brothers Holdings Chief Executive Defends Request that Insurance Fund Pay Legal Bills, Stockbroker Fraud Blog, October 19, 2011

Securities Lawsuits Expected to Reach Record High in ’11, Says Advisen Ltd. Report, Institutional Investor Securities Blog, April 23, 2011

Long Island Rail Road Disability Fraud Leads to 11 People Charged

Published on: October 29, 2011 | by Shepherd Smith Edwards & Kantas, LLP

This week, at least 11 people were charged over a fraud scam that allowed hundreds of Long Island Rail Road workers to falsely claim that they had disabling injuries in order to collect annual pensions. The scam could cost a federal pension agency over $1 billion. Among the defendants are seven ex- railroad workers (including an ex-federal railroad pension agency employee and a former union president) two doctors, and an office manager.

According to prosecutors, employees that took part in the Long Island Rail Road disability fraud claimed they were disabled when in fact they were still able to play golf, ride a bike, or engage in aerobics. The doctors reportedly filed the false claims so they could receive an extra benefit from the Railroad Retirement Board. Per the criminal complaint, Dr. Peter Ajemian recommended that at least 734 employees of LIRR be approved for disability. Dr. Peter Lesniewski recommended that 222 LIRR workers receive disability benefits. A third doctor is believed to have also been involved in the scam but he recently passed away. The doctors allegedly created false illness narratives and medical assessments for hundreds of retirees, receiving $800 – $1200 for each one, in addition to fees for false medical records to support the claims of disability. They also were paid millions in health insurance payments for treatments that were not actually needed.

Approximately $121 million was paid out to LIRR workers, whose disabilities were exaggerated or made up. For example, according to the New York Times, 62-year-old defendant Gregory Noone gets $105,000 in disability and pension payments annually and supposedly is in a lot of pain when he crouches, bends, or grips objects. Yet he manages to play golf and tennis frequently. 55-year-old Steven Gagliano, whose yearly payments are $75,000, took part in a 400-mile bike tour even though he claims to experience back pain that is so severe it is disabling.

The federal government started investigating the scam after the New York Times published a number of articles about LIRR employees abusing federal Railroad Retirement Board pensions in 2008. Per the newspaper, almost all of the railroad company’s career employees were seeking and getting disability payments-that’s three to four times the disability rate of the average railroad company. Also, said the Times, the federal Railroad Retirement Board appears to have been poorly run, with inadequate tests to determine whether disability claims is legitimate. Some railroad officials had even complained that disability benefits were frequently awarded for medical conditions even if a worker’s ability to work hadn’t been impaired. Few claims were turned down.

11 Charged in L.I.R.R. Disability Fraud Plot, NY Times, October 27, 2011
Local Docs Charged in $1B LIRR Disability Scam, Rockville Center, October 27, 2011
US Railroad Retirement Board

More Blog Posts:
“Investor’s Guide to Loss Recovery” Offers Key Information on How to Use Conflict Resolution to Get Your Assets Back, Stockbroker Fraud Blog, September 7, 2011
SEC’s Proxy Access Rule is Rejected by Appeals Court, Stockbroker Fraud Blog, August 5, 2011
No Need for New SRO Overseeing Investment Advisers, Says NASAA Official to Congress, Stockbroker Fraud Blog, April 10, 2011 Continue Reading ›

Money Laundering Charges Filed Against of Houston Criminal Defense Lawyer Accused of Defrauding Defendants of Over $1M

Published on: October 28, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Abraham Moses Fisch, a Texas criminal defense attorney, has been arrested and charged with money laundering, conspiracy to commit money laundering, obstruction of justice, and conspiracy. According to prosecutors, Fisch and Lloyd Glen Williams, who is Houston used car financier, allegedly ran a scam that fooled criminal defendants into thinking they could get the charges against them dropped if they were willing to pay money. Since 2008, the two men have allegedly bilked $1.48 million from a number of defendants through their Houston financial fraud.

For example, per the Houston Chronicle, in 2006, Fisch told accused convinced that cocaine trafficker Edilberto “Beto” Portillo that he could get him released from prison for $1 million. At the time, Portillo was charged with money laundering and drug trafficking. He agreed to pay this amount to Fisch’s friend, who turned out to be Williams. Although Williams wasn’t a lawyer, he was presented was someone who had high level contacts and could resolve criminal cases, get charges dismissed, or have prison sentences reduced.

Another defendant that the two men bilked was Umawa Oke Imo. The Houston physical therapy agency owner just went to prison for a $45 million Medicare/Medicaid fraud scheme.

Prosecutors say that the two co-conspirators would mislead their clients about the process of working with the government. The two men also allegedly lied to some, telling them that government officials had accepted the funds as bribes. Not only did the scheme cost those charged with crimes money, but it also prevented them from reaching legitimate plea agreements and caused them to wrongly think that the cases against them would be dropped.

Per the indictment against Fisch and Williams, the two men money laundered the money they made from the fraud. Fisch is also charged with failing to submit his tax returns in a timely manner every year that he received money for the financial scam. If convicted, he faces 10 years/each of the obstruction of justice counts, 5 years for conspiracy, 10 years for each money laundering charge, 1 year for each failure to file tax return count ((between 2006 and 2010), and 10 years for conspiracy to commit money laundering. Meantime, Williams just pleaded guilty to filing a false tax return and obstruction of justice. He faces up to three years behind bars for the bogus filing, five years max for conspiracy, and a $250,000 fine.

Also arrested was Fisch’s wife, Monica Bertman, who allegedly assisted with her husband’s financial scam. If convicted, she faces up to 10 years for obstruction of justice, up to five years for conspiracy, and also a $250,000 fine.

Feds say Houston lawyer bilked more than $1 million, Chron.com, October 28, 2011
Local Defense Attorney and Others Arrested in Connection with Scheme to Obstruct Justice, FBI, October 28, 2011

Dallas Mavericks Owner Mark Cuban’s Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 18, 2011
Houston Judge Overturns $9.2M Securities Fraud Ruling Against Morgan Keegan, Stockbroker Fraud Blog, October 11, 2011
Merrill Lynch Faces $1M FINRA Fine Over Texas Ponzi Scam by Former Registered Representative, Stockbroker Fraud Blog, October 10, 2011 Continue Reading ›

Boogie Investment Group Inc. Fails Because of Fraudulent Private Placements by Provident Royalties LLC and Medical Capital Holdings Inc.

Published on: October 27, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Boogie Investment Group Inc. has submitted its withdrawal request to the Financial Industry Regulatory Authority. The small broker-dealer is the 20th financial firm that sold Provident Royalties private placements to either leave the brokerage business or announce its intentions to depart. According to Investment News, that’s nearly 40% of independent broker-dealers. Just this year alone, 11 broker-dealers that sold the private placements closed shop. Provident’s bankruptcy receiver reports on its Web site that 52 broker-dealers sold the shares.

Boogie sold about $410K in private placements. Its revenue at the end of the fiscal year was $422K-a definite reduction from the $1.2M of three years back. One of the reasons Boogie decided to bow out of the industry is because of the litigation expenses stemming from the failed private placements. Not only is Boogie contending with a class action lawsuit, but also, it is faced with a securities case filed by investors that purchased Provident’s Shale Royalties products and other arbitration cases not related to Provident private placements.

The Financial Industry Regulatory Authority has been tough on the financial firms and individuals that sold interests in private placements while allegedly failing to thoroughly investigate these products or even have reasonable grounds to believe that placements were suitable for clients. The failure to do the appropriate due diligence resulted in the firms being unable to know what were the risks involved. FINRA also says that the principals it has sanctioned lacked a reasonable basis for allowing their financial firms’ registered representatives to keep selling the offerings.