Individual adviser faces class action over private placements

In an apparent first, a registered representative and his individual practice have been sued in a potential class action stemming from oil-and-gas private placements that the SEC claims were fraudulent.

In an apparent first, a registered representative and his individual practice have been sued in a potential class action stemming from oil-and-gas private placements that the SEC claims were fraudulent.
The lawsuit, filed last week in federal court in Idaho, alleges that Bradley K. Hofhines and his firm, Summit Retirement Advisors LLC, failed to disclose to clients that returns from investments in Provident Royalties LLC securities did not come from revenue generated by actual investments in oil-and-gas properties.
Rather, investor funds were commingled, and funds raised from later offerings were used to pay so called dividends or “returns of capital” to earlier Provident investors.
Mr. Hofhines, whose practice is based in Meridian, Idaho, is affiliated with Securities America Inc., an independent-broker-dealer subsidiary of Ameriprise Financial Inc. Both those companies are named in the suit, which is seeking class action status.
Until now, Securities America had been named in at least two other potential class actions stemming from a series of private placements that have gone afoul. This could be the first time an adviser has been named, however.
Mr. Hofhines, Securities America and Ameriprise “were all involved,” said plaintiff’s attorney Elizabeth Leland, a partner at Keller Rohrback LLP. “The degree of participation” will come out over time and in discovery, she said.
In July, the Securities and Exchange Commission charged Provident of Dallas with committing fraud in the sale of $485 million of preferred stock and limited partnership offerings in oil and gas deals.
Also of note: the lawsuit alleges that Mr. Hofhines and Securities America sold the Provident securities to more than 35 non-accredited investors.
Under federal securities laws, most investors who buy private placements must be “accredited” — high-net-worth individuals with more than $1 million in assets. However, a typical private or “Reg D” deal makes room for 35 or fewer investors who don’t meet the high-net-worth standard.
Ms. Leland said that “at least 35, if not a significant amount more” non-accredited investors bought the Provident securities.
Investors filing the suit were: C. Richard Toomey, Sally Crevier, Elizabeth Mirams, Gillian Mursell and Richard Yerkes.
Mr. Hofhines did not return calls to his office on Tuesday, nor did Janine Wertheim, senior vice president and chief marketing officer for Securities America. Chris Reese, a spokesman for Ameriprise, had not responded to a request for comment on the lawsuit by deadline.