Three brokerage executives who formerly worked at a now-defunct midsize independent broker-dealer were ordered by a three-person arbitration panel to pay $1.05 million, plus interest, to a family that had invested in high risk private placements that turned out to be Ponzi schemes.
The complaint has been an albatross around the necks of the three executives, Robert Mather, Richard Landi and Roger Leibowitz. Those three had worked for Allied Beacon Partners Inc., which ran into financial trouble after the firm lost a large, separate arbitration award and was ordered by a Financial Industry Regulatory Authority Inc. panel to pay $1.6 million to members of the Bosco family.
At the heart of that first Bosco family claim was the plaintiffs’ allegations that investments in Medical Capital and Shale Royalties, also known as Provident Royalties, were fraudulent Ponzi schemes. Allied Beacon and other defendants “failed to conduct proper due diligence, which would have uncovered facts about the true nature of the investments,” according to the 2013 award.
After it ran out of capital and violated industry rules, Allied Beacon shut down last year. Finra expelled Allied Beacon for “failure to pay fines and/or costs,” according to the company’s BrokerCheck report.
When the Bosco family failed to collect the award from Allied Beacon, the plaintiffs then filed another claim, this time naming the three executives.
“The cause of action [is] related to (Allied Beacon’s) loss of a Finra arbitration brought by the claimants, (Allied Beacon’s) subsequent shut down due to net capital violations caused by the arbitration awards and its control persons (Mr. Mather, Mr. Leibowitz and Mr. Landi’s) failure and refusal to pay (Allied Beacon’s) assets to the claimants pursuant to the arbitration award” from the prior claim, according to the arbitration ruling.
The three executives now work for Cabot Lodge Securities, according to their Finra BrokerCheck profiles.
That firm also had a relationship with Allied Beacon. Before it ran out of capital, Allied Beacon was the wholesaling broker-dealer for a nontraded real estate investment trust, United Realty Trust Inc. Cabot Lodge Securities is now the dealer manager for that REIT.
According to his profile on BrokerCheck, Mr. Mather worked at Allied Beacon from April 2011 to November 2013. Allied Beacon’s BrokerCheck profile lists him as the final chief executive of the firm. Mr. Mather did not return a call to his office at Cabot Lodge to comment on the award.
Mr. Leibowitz worked at Allied Beacon from September 2006 to last September, while Mr. Landi worked at the firm from March 2006 to last June. Their exact titles at Allied Beacon were not listed BrokerCheck. Their attorney, Steven Biss, did not return calls Tuesday afternoon to comment.
Arbitration awards that hang on the issue of control person liability are not new to the securities industry, noted one plaintiff’s attorney, Philip Aidikoff. However, they were rare in arbitration claims against the dozens of independent broker-dealers that sold private placements that wound up being Ponzi schemes, such as Medical Capital, Mr. Aidikoff noted.
“In most of the private placement claims you didn’t see control person liability because those firms had insurance,” he said. “Also the claim must be worthwhile or large enough in order to incur the expense of chasing people.”