Another seller of high-risk private placements has withdrawn from FINRA. According to reports, on April 13, Cambridge Legacy Securities LLC filed its broker-dealer withdrawal request with the Financial Industry Regulatory Authority Inc. A few days later, the firm also filed for bankruptcy protection in the U.S. District Court for the Northern District of Texas in Dallas. (The bankruptcy filing was a Chapter 7 no asset bankruptcy.)
In late March, a Finra arbitration panel had awarded a former customer of the firm over $1.6 million in a claim involving private placements. It is this award the presumably precipitated the demise of the broker-dealer. Other on-going arbitration claims against Cambridge Legacy Securities have been stayed by the bankruptcy and these investors who were seeking to recover losses in private placement investments also recommended by Cambridge must now decide whether to move to lift the bankruptcy stay in order to attempt to keep their claims against the firm going.
The bankruptcy filing by Cambridge Legacy Securities highlights a growing problem in the securities industry – the under-capitalization of small broker-dealers and the lack of errors and omissions insurance carried by many of these brokerage firms. As it stands today, brokerage firms are required by FINRA to have only a small amount of “net capital” and there is no regulatory requirement that firms carry insurance. This results in the same basic progression of events as appears to have occurred with Cambridge. A firm sells high-risk, high-commission products, and as soon as it losses a significant arbitration award, the firm simply withdraws its FINRA membership.
Based on reports in the Investment News, it appears that Cambridge may actually be planning to continue to operate as an RIA called Cambridge Legacy Advisors Inc., so despite the brokerage firm’s withdrawal from FINRA and the bankruptcy filing of the broker-dealer, the firm could continue to service clients through its RIA.
The foregoing information has been provided by The White Law Group. The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on the securities attorneys of The White Law Group and the firm’s representation of investors in securities fraud claims, visit http://www.whitesecuritieslaw.com.