A federal bankruptcy court in Texas on Friday approved an order for Emerson Equity, an independent-contractor broker-dealer in San Mateo, Calif., to hand over documents related to the sale of securities backed by Inspired Healthcare Capital, a defunct assisted living developer that declared bankruptcy last month.
Emerson Equity was Inspired Healthcare’s broker-dealer and assisted the company “in equity fundraising activities through the marketing and sale of certain securities,” according to a court filing from Friday.
“It appears that Inspired Healthcare wants to take discovery and the document requests are designed to ferret out business dealings between Emerson and the company,” said Ryan Bakhtiari, an industry attorney.
An attorney for Emerson Equity, Amir Tadjedian, did not return a call Monday to comment. The firm has a deadline of April 3 to produce the documents.
Emerson “was substantively involved” with Inspired Healthcare and the operation of its business and its equity funding, according to the filing, which was made in U.S. Bankruptcy Court in Fort Worth. Emerson Equity was also “privy to other important facets” of Inspired Healthcare’s business, according to the filing.
The order gives Inspired Healthcare’s representatives the ability to ask for Emerson Equity’s insurance policies, board minutes, emails, and other communications and filings, according to the order.
Inspired Healthcare Capital, based in Scottsdale, Ariz., is a sprawling network of related companies, with 161 related debtors and affiliates.
Broker-dealers that sold the now defunct private securities deals backed by Inspired Healthcare Capital generated more than $100 million in fees and commissions for securities that no longer issue distributions – think dividends – to clients.
The value of the $1.2 billion of private placement, DSTs – Delaware Statutory Trusts – and other private vehicles issued by Inspired Healthcare since 2016 and sold by independent broker-dealers is also in question.
It’s not clear the extent of the relationship between Emerson Equity and Inspired Health, but the former was the lead broker-dealer for the latter, meaning it helped shepherd deals to the market.
Emerson Equity was also the lead seller of private bonds issued by GWG Holdings, which went bankrupt in 2022 after defaulting on more than $1 billion in so-called L bonds.
The $100 million in fees and commissions on sales of $1.2 billion in Inspired Healthcare private securities equals an 8.3% rate paid to broker-dealers, clearly on the high end of industry standards.
Founded in 2016 by Luke Lee, Inspired Healthcare Capital of Scottsdale, Ariz., first used private placements to raise money and then in 2020 relied on DSTs, according to a filing from February 4 in the federal court bankruptcy proceedings.
“The company was heavily reliant on capital raises by various broker dealers,” according to that filing. “Emerson Equity was the managing broker dealer on 29 of the DSTs and all the Investment Funds.”
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