A dead-in-the-water broker-dealer is on the hook for $9.1 million in damages and legal fees stemming from sales of failed private investments, according to a arbitration award.
A three-member panel of
Financial Industry Regulatory Authority Inc. arbitrators Friday ordered CapWest Securities Inc., which closed last year, to pay forty claimants $7.925 million in compensatory damages and $1.2 million in attorneys' fees, according to the award.
The cause of the complaint related to the claimants' investments in the “big three” of private placement failures that have wiped out dozens of independent broker-dealers. They are: Provident Royalties LLC, Medical Capital Holdings Inc., both of which have been charged with fraud by the Securities and Exchange Commission, and DBSI Inc., which sold failed real estate transactions.
The $9.1 million award is believed to be one of the single largest arbitration awards based on the sale of failed private placements, said Scott Silver, the plaintiffs' attorney.
But the likelihood of investors' getting any part of the award is extremely slim, he said.
“We are not particularly hopeful because the firm is out of business,” said Mr. Silver. “We're trying to learn whether or not it has any assets, including assets with its clearing firm. While not hopeful, we are pursuing all possible options.”
The investors' allegations included breach of contract, breach of fiduciary duty and negligence.
Dale Hall, the former chief executive of CapWest, did not return a call seeking comment.
The firm ran out of time and then money, its attorney in the matter said. “We had the case settled for $100,000 and then went out of business and couldn't pay,” said Thomas Fehn, an attorney for CapWest. He said the firm had “zero assets. There's not even an obsolete telephone directory.”
The Finra panel gave the claimants almost all of what they asked for. In an amended statement of claim, the investors requested $8.3 million in compensatory damages and attorney's fees. Claimants, however, were denied punitive damages.
The Finra arbitrators’ award, however, was a default judgment, because CapWest stopped responding in the matter and did not appear at a hearing scheduled for last September. On Sept. 28, the Finra panel entered an award in favor of the claimants subject to their further submission of affidavits of damages, attorneys’ fees and costs, according to the award.
