Another Broker-Dealer On The Ropes Raises New Questions About Private Placements

Tuesday, November 22, 2011 10:12
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Another Broker-Dealer On The Ropes Raises New Questions About Private Placements

Tags: broker-dealers

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?

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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.

 

 

Comments (1)

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cburns
How does a B/D not belong to SIPC? I guess another thing to teach investors is to be sure to look for the SIPC sign on the door of their B/D...
cburns , November 22, 2011

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