Independent broker/dealer Harrison Douglas Inc. has filed with the Financial Industry Regulatory Authority and the Securities and Exchange Commission to terminate its registrations and close the firm, after it was “unable to pay an adverse award,” said President Douglas Schriner. According to Schriner, clients of the Aurora, Colo.-based b/d filed a claim against the firm and were awarded $200,000.
The three clients sought about $2.2 million in the arbitration proceedings, a FINRA report showed. Schriner said the clients claimed that certain investments were unsuitable, that the rep was unsupervised and that there was a lack of due diligence. Although the claims included private placements Provident Royalties and Medical Capital, which the SEC claims to be fraudulent, it also included United Development Funding, a real estate investment trust; Desert Capital, another REIT; and ETR Reardon, a raw land development deal in Florida, Schriner said.
The broker/dealer sold about $1.8 million in Provident Royalties securities, according to U.S. Bankruptcy court filings, and it also sold some real estate deals by bankrupt DBSI, according to published reports. The firm had 28 advisors when it notified FINRA of its intent to close in April.
Harrison Douglas is just one in a long string of small independent broker/dealers that have closed their doors in the past year or more. Indeed, small IBD firms have been shuttering left and right, many of them due to the sales of the Regulation D investments. Ameriprise Financial (NYSE: AMP) announced its plans to sell Securities America, its IBD unit, in April due to such problems. And smaller broker/dealers have generally been in a crunch over the last year.
Schriner stressed in a phone interview that the situation had nothing to do with products, but rather was a matter of client responsibility. He said the clients involved had read, signed and approved the investment transactions that the claim addressed, and that they should have also accepted the related risk.
“We’re too willing to blame failure on products that fail,” he said. “Just because a product fails, doesn’t mean we didn’t do our job. Our job is to make money for corporate America; we don’t have a fiduciary responsibility.”
Schriner, who purchased the firm in 1995 and has been building it up since, also expressed frustration that his $2 million business is gone. According to an SEC filing dated June 30, 2010, the firm had about $33,541 in assets. “It’s gone now, and I have no one to sue.”
The shuttering of the business will give Schriner time to focus on his subsidiary, FA Risk Management, which provides legal support and referrals to reps to supplement their errors and omissions coverage.
“In the condition of the litigious marketplace in today’s investment market, accredited investors generally accept no responsibility for their own investment decisions, and FINRA has been their willing accomplice in providing a format for irresponsible investors to penalize registered reps and broker/dealers,” he said.