Provident Royalties LLC, based in Dallas, filed for bankruptcy protection last year in Texas after being charged by the U.S. Securities and Exchange Commission (SEC) with running the scheme from June 2006 through January 2009.

A lawsuit filed June 21 in the bankruptcy case accuses DeWaay and the other firms with failing “miserably in upholding their fiduciary obligations” when selling private placements in the securities.

The lawsuit seeks to return $285 million in investments and commissions paid to brokers to 7,700 investors. According to the lawsuit, DeWaay sold $850,000 in private placements and received $134,525 in commissions.

Trustee Milo Segner Jr. alleges in the lawsuit that commissions were paid to brokers as an inducement to prevent them from investigating the soundness of the investments.

“Each avoidable payment was part of a scheme that was used to ensure that proper due diligence was not performed, that a reasonable investigation was not conducted and that information that would otherwise be important to individual investors and other interested third parties would not be disclosed,” Segner said in the court document. “In other words, the commissions, fees and payments received from Provident Royalties encouraged and played a substantial role in the negligent and/or grossly negligent conduct of the broker-dealers, from the liquidating trustee’s complaint.”

In all, the 49 brokers were paid $34 million in commission on $485 million in investments.

According to the lawsuit, DeWaay was paid commissions between June and October 2008.

Other Iowa firms named in the court document are Ausdal Financial Partners Inc. of Davenport, which received $2,250; Eagle One Investments LLC of Washington, which received $42,500; and Okoboji Financial Services Inc. of Okoboji, which was paid $2.6 million.

Okoboji Financial Services notified the SEC and the Financial Industry Regulatory Authority (FINRA) on May 28 that it had withdrawn as an independent broker-dealer, InvestmentNews reported.

The company, unlike DeWaay, also was cited in the original SEC complaint for receiving a payout for selling the Provident notes.

Okoboji Financial sold $22 million in Provident securities, according to a document in Provident’s bankruptcy case.

In addition, the company was sued in April in federal court in South Dakota for selling $150,000 in private placements in a variety of companies, including Provident, to an 87-year-old widow.

FINRA censured Okoboji Financial and fined it $30,000 for selling private placements to prospective investors with whom neither the firm nor its representatives had a pre-existing relationship, in violation of rules regulating the sale of private placements.

In March, Okoboji Financial lost a $978,000 arbitration over unsuitable structured settlements, according to an InvestmentNews report on FINRA records.

Andrew Dorr, DeWaay’s chief operating officer, said he was confident the complaint against his company would be dismissed.

“There’s is a big difference with the way DeWaay did business and some bad-actor Iowa firms did business,” Dorr said.

The top sellers were Capital Financial Services Inc., Minot, N.D., with $33.7 million in sales; Next Financial Group, Houston, with $33.5 million; and QA3 Financial Corp., Omaha, with $32.6 million.

Three Provident officials orchestrated a Ponzi scheme by offering preferred stock and limited partnerships in oil and gas assets, according to a complaint filed by the SEC in July 2009 in the U.S. District Court for the Northern District of Texas.

An affiliated company, Provident Asset Management LLC, solicited retail broker-dealers such as DeWaay to enter into placement agreements for each offering. The brokers sold the stock to investors, according to an SEC statement on its website.

“Provident falsely promised yearly returns of up to 18 percent and misrepresented to investors that 85 percent of the funds raised through the offerings would be used to purchase interests in oil and gas real estate, leases, mineral rights and interests, exploration and development,” the SEC said.

Less than half of the investor funds were used for those purposes. Instead, proceeds from the offering were used to pay expenses related to previous offerings and to pay returns to investors in those offerings, the SEC said.

If you have questions about investments you made in Provident Royalties with any of these firms, please contact the firm’s Chicago office at 312-238-9650.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida. With over 30 years of securities law experience, including experience working at FINRA (f/k/a the NASD) and the SEC, The White Law Group has the expertise to help investors defrauded in securities, investment and financial business transactions.

For more information on The White Law Group, please visit our website athttp://www.whitesecuritieslaw.com.

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If you questions about investments you made with these firms, call The White Law Group at 312-238-9650 for a free consultation.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida. With over 30 years of securities law experience, including experience working at FINRA (f/k/a the NASD) and the SEC, The White Law Group has the expertise to help investors defrauded in securities, investment and financial business transactions.

For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.

Between January 2005 and November 2006, the firm allowed its OSJ branch managers to self-supervise their own handling of customer accounts without adequate review. In November 2006, the firm adopted a Regional Manager supervisory system to provide principal review of the OSJ managers’ transactions. Through at least December 2007, however, this new system was also unreasonable because, among other reasons, it required three Regional Managers to review thousands of transactions each month with limited access to client suitability information.

The lack of reasonable policies and written procedures resulted in the firm’s failure to detect churning of customer accounts by an OSJ manager, Gregory Horton, and a broker, Timothy Shively, as well as excessive markups and markdowns on corporate bond trades by another two brokers. As a result, customers of the firm, including elderly and retired individuals, lost about $768,000, which has been reimbursed. In separate actions, FINRA barred Horton and Shively from the industry in January 2008 and October 2008, respectively.

Under FINRA rules, firms must appoint one or more principals to “establish, maintain, and enforce a system of supervisory control policies and procedures.” During 2007 and 2008, the firm failed to reasonably satisfy its obligations because, among other failures, it did not adequately test the firm’s supervisory systems or provide adequate review of OSJ branch managers.

FINRA further found that the firm’s systems and procedures governing variable annuity exchanges were not reasonable. Variable annuity sales accounted for approximately 33 percent of the firm’s revenue during the relevant period. The firm’s written supervisory procedures, however, failed to provide adequate guidance concerning the criteria that should be considered in recommending variable annuity exchanges to its customers including, for example, a comparison between the features, costs and benefits of the old and new products.

FINRA also found that the firm failed to apply its written heightened supervision procedures to at least two representatives and properly fingerprint firm employees resulting in it hiring a statutorily disqualified person in its main office.

As part of the settlement, the firm must certify that it has implemented new systems and procedures reasonably designed to achieve compliance with the federal securities laws and FINRA Rules described above and in other areas identified in the settlement agreement.

In settling this matter, NEXT neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

If you questions about investments you made with Next Financial, call The White Law Group at 312-238-9650 for a free consultation.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida. With over 30 years of securities law experience, including experience working at FINRA (f/k/a the NASD) and the SEC, The White Law Group has the expertise to help investors defrauded in securities, investment and financial business transactions.

For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.

The panel also sanctioned Mullins’ wife, Kathleen Maria Mullins, also a former registered representative with Morgan Stanley — giving her a nine-month suspension and a $20,000 fine for borrowing $100,000 from the same client without the approval of her brokerage firm. Kathleen Mullins also made material misstatements on compliance questionnaires concerning her official role in the charitable foundation and receipt of the loan. The hearing panel is also requiring Kathleen Mullins to re-qualify by examination before she can be registered in any capacity in the securities industry.

The hearing panel noted that in early April 2006, just after the elderly widow fell ill and was under round-the-clock nursing care, John Mullins “embarked on his misuse and conversion of the foundation’s funds.” The hearing panel determined that within three months of the customer’s illness, John Mullins misappropriated $4,000 to pay for his and his wife’s vacation at the Four Seasons in London . The hearing panel also found that John Mullins misappropriated $5,500 to reduce his personal bill at Boyds of Philadelphia, an upscale Philadelphia clothing store, and $1,656.47 to buy 23 bottles of wine from Morton’s Restaurant in Atlantic City, which he stored in his personal wine locker at the steakhouse.

Unless the matter is appealed to FINRA’s National Adjudicatory Council (NAC), or is called for review by the NAC, the hearing panel’s decision becomes final after 45 days.

After leaving Morgan Stanley in September 2006, and before being officially barred from the industry for securities fraud violations, John Mullins was a financial advisor with Multi-Financial Securities Corporation and Next Financial Group, Inc. According to Mullins’ FINRA Broker Report (CRD), the FINRA investigation into Mullins’ misappropriation of client funds was not the first instance that Mullins’ has been named in a claim involving securities fraud. Mullins has also been named in at least 6 customer claims related to securities fraud.

If you have questions about investments you made with John Mullins, Morgan Stanley, Multi-Financial Securities or Next Financial Group, or if you believe that you have been the victim of a securities fraud, the Law Offices of David A. Carter, P.A. may be able to help. The Law Offices of David A. Carter, P.A. is a South Florida securities fraud, securities arbitration, investor protection, and Chapter 7 bankruptcy law firm based in Boca Raton. David Carter is a securities attorney that reviews securities fraud cases throughout the country and Florida, including securities cases in Orlando, Jacksonville, Tampa, Tallahassee, Gainesville, and West Palm Beach. To contact the Law Offices of David A. Carter, P.A., please call 561-750-6999, or email us at contact@carterpa.com. For more information about the Law Offices of David A. Carter, P.A., you can also visit our website at www.carterpa.com.