An independent broker-dealer mired in litigation stemming from failed real estate investments scored a significant victory this month when investors lost a $2.6 million arbitration claim against it.
Three investors filed an arbitration claim against Berthel Fisher & Co. Financial Services Inc., and executives and brokers at the firm, alleging negligence, fraud, sales of unregistered securities, negligent supervision and violation of federal and Minnesota state securities laws.
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Financial Industry Regulatory Authority Inc. panel heard the case over five weeks, commencing last August and then halted before starting again in February and ending last month.
“We are pleased that the arbitrators found that our due-diligence procedures and sales practices were appropriate,” Thomas J. Berthel, the firm's chairman and chief executive, said in a statement. “We take great pride in providing excellent customer service, and we believe that our conduct with respect to these investors was entirely appropriate. It is encouraging that the arbitrators agreed.”
Berthel Fisher's exposure to litigation from failed real estate investments is significant.
According to a filing at the end of February with the Securities and Exchange Commission, Berthel Fisher faces $25.9 million in Finra arbitration claims stemming from tenant-in-common exchanges — or TICs — issued by Diversified Business Services and Investments Inc.
Another 300 Berthel Fisher clients have an outstanding claim with the DBSI bankruptcy trustee for $31.4 million, according to the SEC filing. Berthel Fisher is fighting the trustee's action, according to the filing.
The April 9 decision did not list the damages sought by the claimants, Steven Badeau, Earl Holasek and Craig Larmon. A Berthel Fisher spokeswoman, Shelli Brady, gave the size and scope of the claim when she said that the claimants “demanded rescission of their $2,577,000 total investments.”
Those investments were TICs, according to the award. “Claimants alleged that the TIC interests had no value, because the interests turned out to be a massive fraudulent investment scheme managed by the respondents,” according to a summary of the claim included in the award. “Claimants stated that respondents solicited customers for the TIC interests by holding them out as fully vetted, legitimate real estate investments, but were not legitimate.”
The TICs in this claim were not issued by DBSI but by another sponsor, 1031 & TIC Investments LLC, according to the arbitration award.
A lawyer for the claimants, Margaret Goetze, said she did not have time on Monday to confer with her clients about a response to the arbitration panel's decision.
