Another small, independent broker-dealer that faces mounting legal claims is exiting the business, this time after selling real estate deals by a bankrupt syndicator.
Omni Brokerage Inc. of South Jordan, Utah, said at the end of April that it would withdraw its registration with the
Financial Industry Regulatory Authority Inc., according to its profile on BrokerCheck.
Omni reported a loss of $356,000 last year on revenue of $3 million.
In its annual Focus report filed in March with the Securities and Exchange Commission, the firm said that it had been named in several arbitration claims before Finra. The firm said that investors were seeking $2.8 million in compensatory damages.
Omni, which specialized in real estate investments, had net capital of $142,000, according to the SEC filing.
One group of deals that proved problematic involves DBSI Inc., a leading packager of TICs, or tenant-in-common exchanges. The vehicle is a form of real estate ownership in which two or more parties have a fractional interest in the property.
An official with Omni downplayed any connection to its closing and DBSI, and pointed to the upheaval in the real estate market.
The firm's demise stemmed from its inability to increase revenue because of the real estate market's collapse and not from a specific DBSI product, said Cameron Hellewell, general counsel at Omni, which had about 50 representatives and financial advisers. The firm's reps specialized in selling securitized real estate, he said.
TICs gained in popularity after a favorable
Internal Revenue Service ruling in 2002 that allowed investors to defer capital gains on real estate transactions involving the exchanging of properties.
DBSI defaulted on its payments to investors in 2008 and filed for Chapter 11 bankruptcy protection in November of that year.
Late last year, the trustee for the DBSI bankruptcy sued more than 90 broker-dealers that sold the failed product, including Omni. The trustee is seeking to claw back about $49 million from 96 broker-dealers.
In that lawsuit, trustee James Zazzali claimed that TICs from DBSI were part of a $600 million Ponzi scheme.
Omni generated $271,000 in commissions from selling DBSI deals, according to the trustee's lawsuit.
The offerings from DBSI were sold through independent broker-dealers. Dozens of firms that sold failed private placements issued by Medical Capital Holdings Inc. and Provident Royalties LLC have gone out of business over the past few years due to increasing expenses from investor lawsuits and litigation.
E-mail Bruce Kelly at [email protected].
