Bankruptcy Trustee's are getting agressive

Bankruptcy trustees are increasingly laying claim to more brokers' commissions, often long after they have likely been spent, Dow Jones Daily Bankruptcy Review reported today. One recent case, filed against more than 45 broker-dealers, seeks to recover $251 million in damages plus interest, including the return of about $34 million in fees and commissions they received for selling private placements in Provident Royalties LLC. The SEC charged Provident with securities fraud in 2009, alleging in a civil complaint that the offerings were effectively a Ponzi scheme. Broker-dealers named in the suit include Securities America Inc., a unit of Ameriprise Financial Inc., and independent broker-dealer QA3 Financial Corp., both based in Nebraska. Trustees in bankruptcy are increasingly eyeing commissions and fees that advisers receive from issuers in exchange for selling certain investments, said Prof. Jack Williams of the Georgia State


University College of Law. A trustee in a bankruptcy case involving Stanford Financial Group, for example, targeted $40 million of fees, commissions and loans received by 66 former Stanford financial advisers who sold the firm's purportedly high-yielding CDs. The SEC filed fraud charges in 2009 against jailed Texas financier R. Allen Stanford, who is awaiting trial, for running an alleged $7 billion Ponzi scheme involving sales of the CDs. The trustee is trying to recoup a total of $925 million for investors. Adopting a fee-only structure, in which the adviser charges hourly or based on a percentage of a portfolio's value, would likely insulate broker-dealers from clawback cases in bankruptcy proceedings, Williams said.