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 issued $485 -million in private placement that were sold by dozens of independent broker-dealers. The company was charged with fraud in 2009 by the Securities and Exchange Commission, which 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. The arbitration hearing proceeded without attorneys or executives associated with WFP present, according to the award. As of November, the PR Liquidating Trust had collected $18.8 million on behalf of Provident Royalties 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. 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 trustee Milo H. Segner Jr.

B-D'S INSURER TARGETED

When a claimant sues a defunct broker-dealer, the goal typically is to make the broker-dealer's insurance company pay all or part of the award.