The private placement debacle that swept through the independent broker-dealer industry and forced dozens of small to mid-sized firms to close looks like it's finally over. It's been several months since InvestmentNews and other industry publications have covered the story in any meaningful way, and a certain amount of stability has returned to the marketplace.
Of those firms that sold MedCap notes and survived, most notably Securities America Inc., the litigation is behind them and they can get back to business.
The picture for one broker-dealer, however, is not so clear. Hantz Financial Services Inc. is still contending with the fallout from MedCap, the $2.2 billion Ponzi scheme built on shaky medical receivable that the Securities and Exchange Commission shut down in July 2009. According to INs' sister publication, Crain's Detroit Business, Hantz Financial Services Inc. is still facing the potential of class action lawsuit over the sale of the notes. A judge in Oakland County could soon decide on what could be a final attempt to certify the class of investors.
The report, published Sunday evening, about Hantz Financial selling MedCap private placements to 300 clients, came as something of a surprise. Hantz had flown under the radar when it came to selling Med Cap notes. According to the Crain's Detroit story, the remaining investors could have a little more than $20 million in combined damages against the firm.
Hantz Group general counsel David Shea told Crain's Detroit that the firm stopped sales of Med Cap in 2008 after learning a previous series of notes had defaulted. Hantz also performed due diligence on the company and the notes, Mr. Shea said.
In an interview Monday morning, Mr. Shea said that the plaintiff's previously tried and failed to certify a class action in another lawsuit in 2010 before the same judge. “It's in front of the same judge as before,” he said. He was confident of a favorable outcome for Hantz Financial. “You don't get a do over.”
Hantz Financial, a mid-sized firm based in Michigan with 260 affiliated advisers, has not completely escaped MedCap unscathed. Mr. Shea said the firm had settled with a couple of clients over the sale of the notes, but another client failed to win an award against the firm in securities arbitration.
And the firm did not sell the final series, the disastrous MedCap VI, Mr. Shea said. That “blind pool” of assets included an interest in a pornographic app for cell phones and the rights to a movie about the first Mexican team to win the Little League World Series.
Mr. Shea added that Hantz Financial also did not sell the two other most noted private placement failures of the last decade: the oil and gas deal called Provident Royalties and the real estate syndicate known as DBSI. All three are in bankruptcy or under the care of a trustee.
Meanwhile, thousands of investors are waiting to see if they get even a few cents of their money returned.