Yet another brokerage firm that sold private securities is now staggering under unpayable client claims. What happens to the clients if it goes broke before it makes them whole?
DeWaay Financial Network sold around $46 million in real estate notes from DBSI, which went under back in 2008.
It estimates that client claims on those failed instruments could cost $24 million -- about seven times as much money as it has on hand.
As a result, management has asked for a temporary injunction on the claims it already has to pay, or else it will shut down.
DBSI was not a member of SIPC and so its products were not only higher-risk than the marketing copy might have indicated, but uninsured from disasters like this.
I don't know how DeWaay sold these instruments or how much due diligence they did.
At this point, all I know is that it looks like if the clients want to recover their losses, they can't get that money out of a dead firm.