Fraudulent Private Placements
Silver Law Group represented 20 Claimants, mostly retired investors, throughout the United States in a Financial Industry Regulatory Authority (FINRA) arbitration claim against Capwest Securities. At the time of the investments, Capwest Securities marketed and sold non-registered securities through private placement memorandums to Claimants as conservative investments that represented a stable source of current income for investors. Capwest Securities had a duty to conduct a reasonable due diligence review and investigation concerning the accuracy of the information contained in the private placement memorandums. Even if the private placement review was conducted by a third-party Capwest Securities still had an obligation to investigate and perform an independent due diligence review.
Ultimately, the private placement investments defaulted on income payments to investors and the Securities Exchange Commission (SEC) and state regulators conducted investigations. The regulatory investigations found evidence of securities fraud and Ponzi schemes were uncovered revealing the true nature of the investments. Capwest Securities recommended the following investments to investors offered through private placements memorandums:
- Medical Capital Notes;
- Provident Royalties; and
- DBSI, Inc.
The regulatory investigations uncovered the following investment scam “red flags” for the private placements sold to investors:
- above market interest rate returns;
- guarantees of principal;
- unaudited financial statements;
- lengthy “lock-up” periods and limited repurchase plans;
- extraordinary commissions paid to financial advisors; and
- substantial due diligence fees paid to Capwest Securities.
In the prosecution of the legal claims, Silver Law Group sought damages for Claimants’ recovery of reasonable attorney’s fees. Additionally, Silver Law Group sought pre-judgment interest on the losses from the date they were sustained.
The FINRA arbitration claim alleged the following violations:
- Negligence and Breach of Fiduciary Duty;
- Violation of State Securities Fraud Laws;
- Negligent Misrepresentations and Omissions; and
- Failure to supervise due diligence review of private placement investments.
Arbitration Panel Decision
The damages sought in the arbitration claim were $6,055,763. In addition, the FINRA arbitration panel awarded to Claimants’ compensatory damages of $7,925,763; attorney fees of $1,188,863, for a total recovery of over $9.1 million.
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