Boutique broker-dealer Omni Brokerage Inc. filed notice with the Financial Industry Regulatory Authority in late April that it intends to cease business operations as a registered firm.
According to SEC filings, the South Jordan, Utah-based Omni reported a net loss of $356,000 on revenue of roughly $3 million in 2010, and was the subject of numerous arbitration cases for its involvement with DBSI Inc., a commercial real estate investment company based in Idaho that sold Tenants in Common (TICs) investments.
According to Klayman & Toskes, a law firm representing former DBSI investors, the IRS amended its rules in 2003 which allowed investors to avoid capital gains taxes by investing proceeds from a property sale into TIC investments. Individuals who invest in TICs become fractional owners of a single property.
“Between 2003 and 2008, investors purchased about $1 billion of DBSI's TIC investments,” according to the law firm’s website. “FINRA securities brokerage firms who sold DBSI securities products to their customers were required to conduct adequate due diligence into the investments before selling the product. Numerous financial advisors who sold DBSI represented the product as safe and guaranteed, with returns of 7% to 12% per year. With the recommendation to invest in the DBSI TICs, however, many advisors failed to properly advise their customers of the risks associated with the products.”
Moreover, the firm claims, some advisors may have sold DBSI investments to their customers without first receiving their firm's approval. This conduct is called "selling away," and the brokerage firm can be held liable for the investor's losses in the product.
“The issues involving DBSI Inc. are just as serious as those involving MedicalCapital Holdings and Provident Royalties, but until now have received far less attention,” says Douglas Fanelli, a recruiter with Scottsdale, Ariz.-based United Planners Financial Services. “This is just the latest casualty in what is becoming a staggering industry consolidation trend.”
While regulators are setting their sights on larger firms like Securities America, smaller broker-dealers are “slowly knocking themselves off.”
“Omni had too many arbitration cases already filed,” Fanelli adds. “Rather than wait for regulators to come in and shut them down, they proactively made the move.”