In what's becoming an all-too-familiar scene, another small, independent broker-dealer facing mounting legal claims is exiting the business — this time after selling real estate deals by bankrupt syndicator
DBSI Inc.
Omni Brokerage Inc., based in South Jordan, Utah, said at the end of April it would withdraw its registration with the Financial Industry Regulatory Authority Inc., according to its profile on BrokerCheck.
Omni reported a net loss of $356,000 last year on total revenue of $3 million.
In its annual Focus report filed in March with the Securities and Exchange Commission, the firm said it had been named in several arbitration claims before Finra. All in, the firm said, investors were seeking $2.8 million in compensatory damages. According to a lawsuit filed by the DBSI trustee, Omni generated $271,000 in commissions from selling DBSI deals.
Omni, which specialized in real estate investments, had net capital of $142,000, according to the SEC filing.
An official with the firm, however, downplayed any connection to its closing and DBSI — and pointed to the upheaval in the real estate market as the culprit.
The firm's demise stemmed from its inability to increase its revenue, and not from a specific DBSI product, said Cameron Hellewell, general counsel at Omni, which had about 50 reps and advisers.
The firm's reps specialized in selling securitized real estate, and the real estate market's collapse hurt the firm's effort to increase revenues, he said.
Dozens of independent broker-dealers that sold failed private placements issued by Medical Capital Holdings Inc. and Provident Royalties LLC have gone out of business over the past few years due to increasing expenses from investor lawsuits and litigation.
(Click here for a list of 16 B-Ds, with nearly 2,500 reps, that have shuttered since March 2010.)
As with those soured private placements, the offerings from DBSI were sold through independent broker-dealers. DBSI was a leading packager of TICs, or tenant-in-common exchanges. (Click on the following link to see
a list of broker-dealers that sold TICs from DBSI.)
The vehicle is a form of real estate ownership in which two or more parties have a fractional interest in the property. TICs gained in popularity after a favorable Internal Revenue Service ruling in 2002 that allowed investors to defer capital gains on real estate transactions involving the exchanging of properties.
DBSI defaulted on its payments to investors in 2008. The firm filed for Chapter 11 bankruptcy protection in November of that year.
Late in 2010, the trustee for the DBSI bankruptcy sued more than 90 broker-dealers that sold the failed product, including Omni. The trustee is seeking to claw back about $49 million from 96 broker-dealers.
In that lawsuit, which was filed in federal bankruptcy court in Delaware, trustee James Zazzali claimed that TICs from DBSI were actually part of a $600 million Ponzi scheme.
