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March 19, 2010 |
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FINRA Expels B-D; Takes Aim At Private Placement Sales |
The Financial Industry Regulatory Authority on Thursday said it expelled a broker-dealer for selling private placements linked to a Ponzi scheme.
The agency said Dallas-based Provident Asset Management LLC marketed fraudulent private placements offered by its affiliated, Provident Royalties LLC. According to FINRA, Provident Asset Management sold preferred stock and limited partnership interests in a series of 23 private placements offered through its affiliate. Investors were told the money raised would buy interests in oil and gas exploration activity, along with real estate, oil and gas leases, and mineral rights.
Investors also were told they’d be paid dividends from revenues generated from the sale of oil and gas assets. They were promised returns of up to 18% a year.
Instead, FINRA said, Provident Royalties deposited investor funds into a separate bank account and then––in typical Ponzi-like fashion––commingled that money in various accounts and used it to pay dividends and principal to earlier investors.
According to FINRA, Provident Asset Management’s only business line was acting as the wholesaling broker-dealer for Provident Royalties' offerings. These offerings were sold through more than 50 retail broker-dealers across the country from September 2006 through January 2009, and raised more than $480 million through about 7,700 individual investments.
In a statement, FINRA said it’s actively examining broker-dealers involved in retail sales of private placement interests, along with broker-dealers affiliated with private-placement issuers. The agency said it’s looking closely at firms’ compliance with suitability, supervision and advertising rules.
FINRA said it’s tightening the screws in response to rising investor complaints involving private placements, as well as to actions taken by the Securities and Exchange Commission to stop sales of certain private placement offerings.
Provident Asset Management consented to FINRA’s findings, but it neither admitted nor denied the charges. |
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