November 13, 2012
By Bruce Kelly, Investment News
Broker-dealer known for troubled private placements files to deregister with SEC, Finra
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 form known as a “broker-dealer withdrawal” on Friday 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 Financial, 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 true 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 rep with the firm before leaving in 2011. “I’m sorry to see it happen,” Mr. Henschen said. “He used to be my broker.” Mr. DeWaay “was at the wrong place in wrong time,” he added. “He thought these [alternative investments] couldn’t lose, but they did.”
DeWaay Financial 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’s recent Securities and Exchange Commission filings. The company has $820,000 in net capital on hand.
In April, an Iowa state judge kept in place a temporary restraining order on the arbitration claims while he considers whether to combine and certify the class actions.
It was unclear if Mr. DeWaay’s RIA will remain open.
Mr. DeWaay could not be reached for comment.