DeWaay Financial Network LLC is the latest broker-dealer to shut down because of the costly fallout of investor lawsuits stemming from high-risk private placements.
The firm, which was known for its access to private deals, filed a broker-dealer withdrawal form Nov. 9 with the Financial Industry Regulatory Authority Inc., according to DeWaay's profile on Finra's BrokerCheck.
After filing a BDW, broker-dealers typically have two to three months to wind down their businesses.
DeWaay, based in Clive, Iowa, and owned by the formidable Iowa broker Donald DeWaay, is in a drawn-out battle with wealthy clients over failed real estate deals.
At one time, Mr. DeWaay was a superstar broker, producing between $8 million and $10 million in fees and commissions annually, said Jon Henschen, an industry recruiter who was an affiliated registered representative with the firm before leaving last year.
“I'm sorry to see it happen,” Mr. Henschen said. “He used to be my broker.”
Mr. DeWaay “was at the wrong place at the wrong time,” Mr. Henschen said. “He thought these [alternative investments] couldn't lose, but they did.”
DeWaay built a large part of its reputation on selling alternative investments. In recent months it also has been losing star brokers, including Erin Botsford, to rival firms.
The firm faces two class actions seeking a total of $15.2 million. They are by clients who bought securities of Diversified Business Services and Investments Inc., or DBSI, which filed for bankruptcy protection in 2008.
Meanwhile, investors have filed arbitration complaints against DeWaay, with Finra seeking $15 million, according to the firm. The company has $820,000 in net capital.
DeWaay recorded a loss of $1.8 million in 2011 on total revenue of $14.2 million, according to an SEC filing.
DeWaay and claimants in a class action have filed a settlement agreement for $3 million, according to The Des Moines Register. A hearing is tentatively scheduled for Jan. 30, the paper reported. Other investors have objected to the settlement, saying they lost about $250 million.
Mr. DeWaay said he intends to work with his clients through his RIA.
bkelly@investmentnews.com Twitter: @bdnewsguy
