Stop us if you've heard this one before: Another B-D that sold Provident private placements has ceased operations.
Milkie/Ferguson Investments Inc., a small broker-dealer that was a big seller of fraudulent Provident Royalties LLC private placements, has shut down. But unlike reps at many other broker-dealers that have closed since the Securities and Exchange Commission charged Provident with running a Ponzi scheme in 2009, Milkie's adviser force has been able to make an orderly transition to another broker-dealer.
Berthel Fisher & Co. Financial Services Inc. this summer has picked up 26 of the 40 reps formerly with Milkie/Ferguson, said Tom Berthel, chief executive of Berthel Fisher. Milke had been looking for an exit for at least two years, Mr. Berthel said.
“We did not acquire the assets or liabilities of the firm, and this is primarily a recruiting deal,” he said, declining to disclose the terms of the recruiting offer. “We hope they came for our culture, product mix and service,” he said, adding that the reps are based primarily in Dallas and control about $400 million in assets.
“We worked with the regulators to do this,” he said. “We're pretty pleased they chose us, obviously.” Both Milkie/Ferguson and Berthel Fisher use National Financial Services as a clearing firm.
Milkie/Ferguson filed its broker-dealer withdrawal request with the Financial Industry Regulatory Authority Inc. on July 26. The firm last week lost a $25,000 Finra arbitration claim, which was not related to Provident, according to the arbitration award.
According to U.S. Bankruptcy Court filings, Milkie/Ferguson reps sold at least $4.1 million of Provident Royalties preferred shares. That made it the eleventh largest firm that sold those shares.
The figure may be incomplete, however, as the bankruptcy filing counted only about half of the $485 million in Provident Royalties shares sold by independent broker-dealers to investors.
Selling Provident Royalties preferred shares from 2006 to 2009 turned into a death warrant for dozens of independent broker-dealers. At least 23 of the 60 broker-dealers that sold Provident Royalties shares are out of business, many of them swamped by the cost of fighting clients' lawsuits related to the fraud.
With about 40 brokers and $6.6 million in revenue last year, Milkie/Ferguson was a small firm. Such firms are continuing to struggle due to several factors: equity markets that scare retail investors, rising costs of technology, increased fees from regulators such as Finra and the fallout from failed investments such as Provident Royalties.
The firm's CEO and owner, Edward M. Milkie, has been registered with Berthel Fisher since June. He started Milkie/Ferguson in 1986. Mr. Fisher said Mr. Milkie was not working as a manager at Berthel Fisher but was a producing registered rep.
Two co-founders of Provident Royalties LLC were indicted by the Justice Department on Wednesday in connection with the $485 million investment fraud that involved 7,700 investors.
The two former Provident executives, Brendan W. Coughlin, 46, and Henry D. Harrison, 47, were charged by the U.S. Attorney's Office for the Eastern District of Texas in Plano with one count of conspiracy to commit mail fraud and 10 counts of mail fraud, according to a statement by the Justice Department. If convicted, each faces up to 20 years in prison.
An attorney for Mr. Coughlin, David Finn, was not available at 3:30 on Monday to comment.
The Securities and Exchange Commission earlier this year settled a civil suit filed against the two in July 2009 when the Ponzi scheme collapsed, leaving investors and broker-dealers that sold the Provident private placements reeling. Details of the settlement were not released. But in an interview last month, the attorney for Mr. Harrison, William Ravkind, questioned the DOJ indictment's merits, particularly as it came after the conclusion of the SEC's three-year investigation and settlement. "I think the conduct by the Department of Justice is totally improper," he said.
From 2006 to 2009, about 60 broker-dealers and investment advisory firms sold the Provident deals, which promised annual returns up to 18%.
Another Provident executive, Joseph Blimline, pleaded guilty in 2010 in U.S. District Court for the Eastern District of Texas to conspiring to defraud investors who invested in Provident. He also pleaded guilty to a second charge of defrauding Michigan investors in a separate $50 million oil-and-gas scheme. He was sentenced in May to 20 years in federal prison for the Provident scheme, according to a statement from the office of U.S. Attorney John Bales.
