A small Texas broker-dealer that was the underwriter and wholesaler for a real estate investment trust under investigation by the FBI is shutting down.
Based in Houston, IMS Securities Inc. has informed the Financial Industry Regulatory Authority Inc. of its intention to close and is seeking to terminate its registration with Finra, according to the firm's BrokerCheck report. That means IMS has filed the Form BDW, or the request for broker-dealer withdrawal. No date is stated on a firm's BrokerCheck profile as to when it will close.
IMS was the wholesaler in charge of selling United Development Funding IV, according to filings with the Securities and Exchange Commission. At the time, UDF IV was a nontraded REIT and eventually listed and began trading in 2014.
UDF IV raised money from investors as a nontraded REIT from 2009 to 2013 for $20 per share before listing on the Nasdaq in 2014.
In February 2016 the FBI raided the suburban Dallas offices of UDF IV and management of the company was subpoenaed to hand over company documents to a grand jury. The share price of UDF IV collapsed after news of the FBI raid came to light.
Broker-dealers — including IMS Securities — that sold UDF REITs are being sued by investors through securities industry arbitration.
IMS reported $9.4 million in total revenues last year, the lion's share of which was from commissions, according to a filing with the SEC. Jackie Wadsworth, the owner, CEO and compliance officer of IMS, did not return calls Monday to comment.
It was not clear why IMS is shutting down. But at the end of October, it lost an arbitration claim stemming from investments in various REITs, including UDF IV.
Eight investors alleged that IMS Securities, Ms. Wadsworth and four brokers "overconcentrated [their] retirement portfolios in illiquid alternative investments in annuities and private placements," including UDF IV, according to the arbitration award. The claim against Ms. Wadsworth was denied, but the firm was ordered to pay clients $1.3 million, and two brokers were ordered to pay $976,000. IMS had $31,500 in net capital at the end of last year, according to a filing with the SEC.
During and after the credit crisis, it was common for small or mid-sized broker-dealers to shut down after running out of money to pay for arbitration claims won by investors who were sold products that blew up.