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16 arbitrations and 4 written demands registered against WFP Securities
Thomas Seaman, the MedCap ponzi Receiver says he is "inviting pre-litigation settlement discussions" with trustees. As you may be aware, the trustees involved are Wells Fargo and Bank of NY Mellon-- both of which have considerable resources.— May 11, 2011 12:16 p.m.
16 arbitrations and 4 written demands registered against WFP Securities
Take note that receiver for MedCap has just pulled out an "elephant gun" and is apparently starting to file clawback lawsuits. The action taken against the Sedgwick law firm is a pretty big deal. How many more lawsuits are in process here?— May 10, 2011 12:48 p.m.
16 arbitrations and 4 written demands registered against WFP Securities
MedCap receiver suing Sedgwick law firm for $200 mil. Check out American Bar Assn. Website— May 6, 2011 7:36 a.m.
16 arbitrations and 4 written demands registered against WFP Securities
One tidbit that might be of interest to folks that invested in Provident. The receivers quarterly report dated April 30 should be available shortly. Last fall, as you may know, the receiver filed CLAWBACK lawsuits against all of the broker dealers who sold Provident to recover some 30+ million of commmissions. Some of the brokers involved have already gone out of business but the remaining firms will likely have to pay up. The commissions here were relatively high and brokers can show little evidence they did much "real work" in suitability review or due diligence or other monitoring of the investments to justify, for example, an 8.5% commission plus a 1% due diligence fee. A review of clawback actions taken in other bankruptcies show that the receiver is likely to be on very solid ground in these lawsuits. The bankruptcy law was changed in 2005 and gives a lot of bite to clawback actions. Look at similar action taken in the DBSI, Petters, Stanford, and Madoff ponzi schemes. Receivers are showing no mercy here. It should also be noted that the Provident receiver has sued the same BD's for some $250 million in damages. How much of it will be awarded is unknown, but I bet the number is a lot larger than zero. (It probably will depend on IF the receiver can prove the BD's "aided and abetted" the continuation of the scheme.) Stay tuned......— May 4, 2011 9:52 a.m.
16 arbitrations and 4 written demands registered against WFP Securities
Unfortunately, the investors who bought into Desert Capital are likely to get close to zero because of this bankruptcy filing unless they had some kind of preference over other creditors. Investments in Nevada real estate developer loans are probably worthless. Did they have some other assets? Even if the SEC finds some criminal or civil violation here, I would think it is unlikely that investors could recover anything unless there is some malfeasance by a deep pocketed backer or bank trustee. The MedCap and Provident ponzi's, on the other hand, had potential enablers with deep pockets. I don't see any signs of that with Desert Capital.— May 2, 2011 10:39 a.m.
16 arbitrations and 4 written demands registered against WFP Securities
Don, It is my best guess that both FINRA and the SEC are going to look at these cases on a three prong approach. First, the due diligence was faulty. All investors were equally harmed. In a case of a ND broker, the SEC found that Provident actually paid the broker firm some $600k as a due diligence fee and the management spent zero. The SEC has taken drastic action against the leadership and FINRA arbitrators cannot ignore this aspect especially when the originators had prior history of skimming or no experience or financial statements lacking credibility. Secondly, each client was "sold" by a real person on investing in a Reg D offering. Sales material was used and promises or representations were made. Each client heard different pitches, I suppose but we now know that some clients in Colorado (in another case) kept asking if the investment was "safe" Investors say they were told by the selling broker that the investment was "rock-solid"--- several times. I think this is the stuff FINRA will smack both the broker and the leadership for supervisory deficiencies. If a investor was told such info they could be awarded punitive damages by FINRA. (You are probably aware that most of the RegD issuers have aggressive selling operations and employ wholesalers to push product sales--all of which will now get a lot of very close attention.) Thirdly, Reg D stuff was supposed to be sold to "accredited investors" who had significant wealth, substantial incomes and tolerance for risk. We are now learning that it was also sold to some "non-accredited investors", which is legal, provided that the investor acknowledges they don't meet the wealth and income standards and want to take on the risk anyway. (Madoff was a pro at getting people sucked in on the belief that they were part of an exclusive club and some were, but not all.) FINRA is going to look carefully at "suitability." Your article clearly describes some investors that probably would not be called suitable--in my humble opinion. As I understand, each arbitration case is going to be based on those 3 elements for sure. FINRA hasn't always come through for investors on the 2nd and 3rd elements, but when the SEC has charged a ponzi scheme existed, I think the due diligence problem is going to results in some amount of awards for almost all investors who go into arbitration. This isn't a legal opinion, its just common sense.— April 29, 2011 10:43 a.m.
16 arbitrations and 4 written demands registered against WFP Securities
Don, You may find the following FINRA action against Workman Securities to be very relevant. Workman sold both MedCap and Provident. FINRA cited Workman for the suitability issue you mention, but also for supervisory deficiencies and inadequate due diligence. Each client has different circumstances of course. And FINRA arbitration panels do vary in judgement and, as I understand, the files about these actions are mostly sealed. In the Workman case, FINRA went public---perhaps as a warning to other BD firms. Read it at the following link: http://www.finra.org/web/groups/industry/@ip/@enf…— April 27, 2011 9:51 a.m.
16 arbitrations and 4 written demands registered against WFP Securities
Don, I don't think I am being too optimistic about FINRA here. You are probably looking at the past and only at arbitrations that were non-ponzi. In those cases, as I understand, the investor only wins 50% of the time with FINRA arbitration. In the cases won, the award averages only about 40% of the amount claimed. Plus, it takes a decent sized claim (perhaps $100,000 lost) to justify the attorneys fees. Looking at some recent claims flied by investors in Provident, we have a firm in Omaha called QA3 with 400 advisors closed up shop. The legal costs were eating them and even though FINRA apparently hadn't made a final determination. In another case a firm named Workman Securities sold Provident and FINRA whacked them very hard....you can read about it on FINRA's website. Securities America lost big on some FINRA arbitration, which you can find via Google search on the Wayman claim. I really do believe that Provident and MedCap claims are almost a slam dunk for the investors to recover a decent amount. The biggest seller of MedCap just agreed to a bulk settlement deal with plaintiff attorneys to pay about 40% to MedCap and Provident investors in hoping to avoid the FINRA process. In the cases you mention about in the article, I don't see how they could come up empty on either MedCap or Provident. The bigger problem might be limits of insurance coverage. QA3's insurer basically conceded they had a valid claims of about $7.5 million but the insurer would not pay more than $1 million total. Another BD is Next Financial where the insurer is unwilling to pay out more than about $2 million. Do some research, you will find that BD E&O insurance is a not well understood business and most brokers have no idea about their true exposure. It's false comfort. I still think the big money is going to come from clawback actions of the bankruptcy receiver. Just wait a few months before the time limit runs out. Think of what Picard has done with the Madoff case. I can separately email some other eye-opening receiver success with ponzi's if you wish to see it.— April 26, 2011 3:21 p.m.
16 arbitrations and 4 written demands registered against WFP Securities
Don, Thanks for your response. If the insurer is trying to draw a line in the sand here, that makes some sense and it will probably drag on for some time. I suspect that the insurer already knows it will lose on the MedCap and Provident investments because several other B-Ds have been successfully collecting insurance on those deals. The underlying facts of these two cases are so offensive, that FINRA arbitrators are throwing the book at the selling BD and imposing substantial fines as well. If you do some research, you will find that a number of small BD firms have been driven out of business by MedCap and Provident. On the two real estate investments, I would guess that the insurer can make a strong case this is a "market related" loss and the BD isn't at fault. If one of the real estate deals was tainted by self-dealing a non-registered piece of empty land, however,there might be some case for a insured loss. You have to wonder how much of this shaky stuff was sold by WFP and if the insurance proceeds available to all claimants will be limited and if they have enough capital to pay out the remaining claims??? You mentioned earlier that NASD and FINRA haven't necessarily been so effective in helping investors in arbitration. I think the landscape has recently changed and RegD offerings are now high on FINRA's hit list. The abuses have been so bad, the industry is going to have to change and no insurer may want to write E&O insurance coverage on RegD offerings ---so the under-capitalized BD firms may be prevented from selling them in the future.— April 26, 2011 8:54 a.m.
16 arbitrations and 4 written demands registered against WFP Securities
Don, first of all, good job of reporting. I haven't read the interplead you refer to, but I am assuming that the e&o insurer is balking at full payment. You may be aware that Caitlin Specialty has already denied expected coverage with a few brokers. One of them is QA3 in Omaha that closed up. They all sold the same trash as WFS. I think that brokers expected that insurers would only apply the deductible once because multiple clients owned the same ponzi. Insurers were blindsided by many brokers who did sloppy due diligence and argue the deductible applies to each investor. Is that the nature of the dispute here?— April 25, 2011 4:23 p.m.