Two principals of former independent broker/dealer WFP Securities Corporation were awarded $135,000 yesterday, a rare reprieve in the recent deluge of arbitration claims against the firm, and other IBDs, over risky investments in private placements and non-traded REITs.
Similar arbitration claims and litigation rarely come out in favor of the firms and the advisor, and in many cases have driven them out of business. WFP itself was so inundated with claims it wound up violating FINRA’s net capital requirements and closed in June 2011, said Brandon S. Reif, managing partner of Winget Spadafora & Schwartzberg in L.A., who represented the IBD.
Former WFP Securities client Jaimie Davis filed the claim against Curtis J. Sathre III, the advisor, and John Schooler, WFP’s president. She alleged the firm put her $2.5 milion portfolio at risk by investing in Medical Capital, an allegedly fraudulent private placement; DBSI Denton Court; Striker Partners; Desert Capital REIT; and other private placements and non-traded REITs. The claim alleged negligence, breach of fiduciary duty, breach of contract, and failure to supervise and control personal liability.
But the arbitrators awarded the brokers because, according to Reif, investments made on behalf of the client in 2004 and 2005 were found to be time-barred, meaning the claimant waited too long to file the claim. Under the statute of limitations, a complain must be filed one to four years after the fact, depending on the case, Reif said.
The claims involving later investments, made between 2006 and 2009, were also denied because the arbitrators found that she had signed documents stating that she was aware the investments were high-risk and speculative. That belied her claim that the broker represented the investments as conservative. “She knew what she was getting into,” Reif said. Arbitrators also found she had taken legal action against the investment providers themselves, Reif said.
Nonetheless, Reif believes this award may signal an end of the tidal wave of similar actions against the industry.