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Robert W Pearce
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Mr. Pearce has tried, arbitrated and mediated numerous disputes involving complex securities, commodities, administrative, contract, commercial, business tort and employment law issues for over 30 years. He has represented hundreds of clients in Federal and state courts (trial and appellate) as... More
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The Law Offices of Robert Wayne Pearce, P.A.
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The Investor's Rights Law Blog
    Feb 4, 2013 3:09 PM

    After previously announcing that it sanctioned two firms and seven individuals for selling interests in private placements, the Financial Industry Regulatory Authority (FINRA) has added eight more firms and 10 more individuals to its investigation. The firms and individuals sold interests in high-risk private placements such as Provident Royalties without conducting a reasonable investigation, therefore having no reasonable basis to recommend the investments. FINRA has ordered the firms to pay $3.2 million in restitution due to significant investor losses.

    Between September 2006 and January 2009, Provident Asset Management, LLC, marketed and sold preferred stock and limited partnership interests in a series of 23 private placements offered by its affiliate, Provident Royalties. The Provident offerings were sold to customers through more than 50 retail broker-dealers nationwide and raised approximately $485 million from over 7,700 investors. Although a portion of the proceeds of Provident Royalties' offerings was used for the acquisition and development of oil and gas exploration and development activities, millions of dollars of investors' money was transferred from the later offerings' bank accounts to the Provident operating account in the form of undisclosed and undocumented loans, and were used to pay dividends and returns of capital to investors in the earlier offerings, without informing investors of such activities. In July 2009, the SEC filed a civil injunctive action in the Northern District of Texas naming Provident and others for violations of the federal securities laws. While the SEC action was pending, FINRA announced that it had expelled Provident Asset Management, LLC, a Dallas based broker-dealer, for marketing a series of fraudulent private placements offered by its affiliate, Provident Royalties.

    FINRA's findings revealed that the broker-dealers did not have adequate supervisory systems in place to identify and understand the inherent risks of the offerings and, as a result, many of the firms failed to conduct adequate due diligence of the offerings. Also, many firms did not have reasonable grounds to believe that the private placements were suitable for their customers. Furthermore, the sanctioned principals did not have reasonable grounds to permit the firms' registered representatives to continue selling the offerings, regardless of the numerous red flags or signals that existed regarding the private placement. The following firms have been sanctioned by FINRA for failing to conduct a reasonable investigation or for failing to enforce procedures with respect to the sale of private placements offered by Provident Royalties: NEXT Financial Group, Investors Capital Corporation, Capital Financial Services, National Securities Corporation, Securities America, and Meadowbrook Securities.

    FINRA has vowed to continue to look closely at sales of private placements to determine whether the selling firms are fulfilling their responsibilities to customers. These efforts reinforce that any firm or person who fails to conduct reasonable investigations of offerings, especially when there are multiple red flags, will not be permitted to shift all the responsibility to the issuers of fraudulent private placement investments.

    Have you suffered losses in Provident Royalties? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

    The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website,, post a comment, call (800) 732-2889, or email Mr. Pearce at for answers to any of your questions about this blog post and/or any related matter.

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