Indie broker-dealer says Reg D sales could drive it under

Another independent broker-dealer that sold high-risk private placements is hanging on by a thread, with the firm's management stating grave concerns about the broker-dealer's future. CapWest Securities Inc. reported in its most recent filing with the Securities and Exchange Commission that a number of events — including three straight years of losses, a decline in net capital and a raft of lawsuits — “raise substantial doubt about the company's ability to continue as a going concern.” The firm reported a loss of $109,000 last year on revenue of nearly $3 million. Dale Hall, the chief executive of CapWest Securities, didn't return messages seeking comment. With many smaller broker-dealers going belly up because of sales of Regulation D private placements, securities cops have increased their oversight of sales of the illiquid deals. CapWest's fundamental dilemma is a lack of capital. The filing shows that the firm had net capital of $80,420 as of Dec. 31. “If, as a result of losses from operations of from litigation, the company were to fail to meet regulatory net-capital requirements, it would be required to raise additional capital to continue operations,” the firm's management noted in the filing. “There can be no assurance that the company will be successful in obtaining additional capital on terms favorable to the company, or at all.” According to court documents, CapWest brokers sold about $22 million of private placements issued by Provident Royalties LLC, which the SEC charged with fraud in 2009. CapWest also sold an unknown amount of DBSI Inc., a packager of real estate deals that was popular among independent broker-dealers. DBSI is now in bankruptcy court. “Management believes that certain of the pending actions are fully defensible and will result in no liability to the company or insurer,” the firm said. E-mail Bruce Kelly at [email protected].