by Brian Mahany
My “in box” is likely to explode after people see the title of this post. But its true. Although large broker dealers and investment banks can fail (think Lehman Brothers or MF Global), smaller firms tend to fold far more often. An article by Bruce Kelly yesterday in the online edition of InvestmentNews says that smaller firms often fail after being hit with investor claims.
Pacific West Securities said it was shutting down after an arbitration panel from the Financial Industry Regulatory Authority (FINRA) ruled that the firm had to pay $2.1 million to a client. Larger firms can usually absorb claims but many smaller stockbrokers are thinly capitalized and can’t sustain such losses.
The Pacific West case involved the sale of tenant-in-common exchanges also known as TICs. (See our February 15th blog post for more information on TICs.) Complex real estate products such as tenant-in-common exchanges have generated many complaints. Because of their complexity and frequent lack of secondary market, they are not suitable for many investors. The investor in the Pac West case told arbitrators that his investment was not suitable because of his age, financial condition, cash flow needs and risk tolerance. Apparently the panel agreed.
(Regular readers know that claims against stockbrokers and investment advisers are usually handled through binding arbitration.)
According to the article, a spokesperson for Pacific West said the award would get paid but wouldn’t comment on other possible or pending claims. Because many brokerage firms are thinly capitalized, its important to seek redress right away. Wait too long and the firm may be out of business.
The take away from Pacific West is to make sure your broker dealer is large or solvent enough to sustain any claims against it. The second lesson is if you are defrauded or lose money from the bad advice of a stockbroker, don’t wait long before filing a claim.
If you purchased a TIC or other thinly traded real estate investment and think you were misled, give us a call. Our securities fraud lawyers have helped many people get back their hard earned money. Most cases can be handled on a contingent fee basis.
For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at All calls are kept in strict confidence.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine and Minneapolis, Minnesota. Services available in most jurisdictions.