Brokerage Firm QA3 Will Cease Operations as a Result of Soured Private Offerings


QA3 Financial Corp. will apparently join approximately twenty-four other brokerage firms that have shut down over the past twelve months. The firm announced that it will cease operations effective February 11, 2011, according to Bruce Kelly’s InvestmentNews article, “B-D down: QA3 to close up shop next week.” The announcement was made by owner and CEO Steve Wild in an email to the firms’ 400 brokers, according to the article. It is unclear as to when and how QA3 plans to inform its customers. According to InvestmentNews, Mr. Wild did not return phone calls on Thursday and Friday.

Mr. Wild’s email reportedly stated: “In light of the arbitration award rendered against QA3 on January 14, and the fact that our errors and omissions carrier has not yet provided coverage set forth in our policy, we have made the difficult decision to cease conducting business as a broker-dealer effective as the close of business on February 11.”

The email appears to makes reference to an adverse $1.6 million arbitration award and its E&O carrier’s position that QA3’s liability coverage is capped at $1 million, not $7.5 million as QA3 has stated.

QA3 was a major outlet for Regulation D private placements ? high-risk investments that are exempt from registration with the Securities and Exchange Commission provided that certain requirements are met. Two such private placements sold by QA3, Medical Capital Holdings Inc and Provident Royalties LLC, face fraud charges from the Securities and Exchange Commission.

According to the article, QA3 has been “unraveling” for some time. The firm claimed it faced bankruptcy because of the coverage dispute with its insurance carrier. In January, QA3 lost a $1.6 million arbitration award to an elderly couple who invested in failed real estate deals. The Financial Industry Regulatory Authority Inc. was concerned about the firm’s levels of net capital. The firm also faces other lawsuits and arbitrations regarding various failed private placements.

The firm tried to raise money in 2009 with its own Reg D offering, but apparently failed to attract investors as of July 2009. QA3 reportedly had been in discussions with other independent broker-dealers to sell the firm’s assets.

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