Finra panel sets $18.5 million award against defunct B-D

A Finra arbitration panel has issued an $18.5 million award to the trustee of Ponzi scheme Provident Royalties LLC, and the loser was a broker-dealer that no longer exists but at one time was a big seller of private placements.
A three-person arbitration panel at the Financial Industry Regulatory Authority Inc. on May 30 finalized the award against WFP Securities Corp., which went out of business in August 2011.
Provident Royalties was a $485 million private placement sold by dozens of independent broker-dealers that the Securities and Exchange Commission in July 2009 charged with fraud. The SEC alleged that Provident Royalties made fraudulent oil and gas offerings between 2006 and 2009 to more than 7,700 investors. Three Provident Royalties executives have pleaded guilty to criminal charges in connection with the fraud.
Almost three dozen broker-dealers that sold preferred shares of Provident Royalties have gone out of business, unable to pay the costs of investor complaints.
WFP Securities’ phones have been disconnected.
A win in arbitration against a defunct broker-dealer could prove useful in a complaint against the broker-dealer’s insurance company, said Andrew Sommerman, the attorney for Provident Royalties, Milo H. Segner Jr.
When a claimant sues a defunct broker-dealer, the goal typically is to have part or all of the award paid by the broker-dealer’s insurance company.
According to the award, the arbitration hearing proceeded without attorneys or executives associated with WFP present. As of November, the PR Liquidating Trust had collected $18.8 million on behalf of Provident investors and creditors with claims against the company, according to the trustee’s website. The trustee made several allegations against WFP in its arbitration claim, including negligence and breach of fiduciary duty, according to the award.