FINRA

News = Releases
Speeches
Statistics=20

For=20 Release:
Contacts:
Thursday, March 18, 2010
Nancy Condon (202) = 728-8379
Herb=20 Perone (202) 728-8464

Dallas-based Provident Asset Management Expelled for Marketing = Fraudulent=20 Private Placements Offered by Affiliate in Massive Ponzi = Scheme

FINRA Continues Nationwide Initiative Investigating Broker-Dealers = Engaged=20 in Private Placements

Washington, D.C. =E2=80=94 The Financial Industry = Regulatory=20 Authority (FINRA) announced today that it has expelled Provident Asset=20 Management, LLC, a Dallas-based broker-dealer, for marketing a series of = fraudulent private placements offered by its affiliate, Provident = Royalties,=20 LLC, in a massive Ponzi scheme.

The action announced today is the first produced by a FINRA = initiative=20 involving active examinations and investigations of broker-dealers = involved in=20 retail sales of private placement interests, as well as broker-dealers=20 affiliated with private placement issuers. FINRA is looking at firms' = compliance=20 with suitability, supervision and advertising rules, as well as = potential=20 instances of fraud. The initiative was undertaken in response to an = increase in=20 investor complaints involving private placements and Securities and = Exchange=20 Commission actions halting sales of certain private placement = offerings.

Provident Asset Management misrepresented to investors that the funds = raised=20 through the offerings would be used to purchase interests in the oil and = gas=20 business, including exploration activity and the acquisition of real = estate, oil=20 and gas leases and mineral rights. In fact, investors' funds were = commingled and=20 used by an affiliated issuer to make dividend and principal payments to = other=20 investors. In addition, the firm acted as the agent in an oil and gas = private=20 placement offering but failed to establish an escrow account for = investors'=20 funds during the contingency period of the offering.

"Provident facilitated the sale of a series of fraudulent private = placements=20 that were marketed to unsuspecting customers as income-producing = investments,=20 when it was simply using new investors' money to pay previous investors = the=20 promised dividends =E2=80=93 a classic Ponzi scheme," said Susan L. = Merrill, FINRA=20 Executive Vice President and Chief of Enforcement. "While the private = placement=20 market is an important source of capital for many companies, the market = is also=20 one in which investors have been subject to unsuitable or abusive sales=20 tactics."

FINRA found that from September 2006 through January 2009, Provident = Asset=20 Management marketed and sold preferred stock and limited partnership = interests=20 in a series of 23 private placements offered by Provident Royalties, = LLC.=20 Provident Asset Management's only business line was acting as the = wholesaling=20 broker-dealer for the Provident Royalties' offerings, which were sold to = customers through more than 50 retail broker-dealers nationwide, raising = over=20 $480 million through approximately 7,700 individual investments made by=20 thousands of investors.

FINRA's broader investigation into broker-dealers that sold the = Provident and=20 other troubled private placement offerings is continuing.

The Provident Royalties private placement memoranda promised = investors=20 returns of up to 18 percent per year and said the funds raised through = each=20 offering would be used to purchase interests in all aspects of the oil = and gas=20 business.

In an effort to market the Provident Royalties offerings, the firm = falsely=20 represented that: investors' funds would be used by each individual = Provident=20 Royalties offering to purchase interests in the oil and gas business for = that=20 offering; the subscription proceeds of each offering would be deposited = into an=20 account for that offering and become assets for that offering; = approximately 86=20 percent of the subscription proceeds would be allocated to acquiring = interests=20 in the oil and gas business; and, dividends paid to investors would be = derived=20 from revenues, primarily from the sale of oil and gas assets.

In fact, Provident Royalties deposited the investors' funds from each = offering into a separate bank account. Then, in the fashion of a classic = Ponzi=20 scheme, the money was either moved freely from one account to another or = was=20 swept into one of Provident Royalties' operating accounts and used to = pay=20 dividends and principal to earlier investors.

On July 2, 2009, the SEC filed a civil=20 injunctive action in the Northern District of Texas naming Provident = Asset=20 Management, Provident Royalties and others, seeking a temporary = restraining=20 order and an emergency asset freeze and appointment of a federal equity = receiver=20 to take control of the entities and preserve their assets for the = benefit of the=20 defrauded investors.

In concluding this settlement, Provident Asset Management neither = admitted=20 nor denied the charges, but consented to the entry of FINRA's = findings.

Investors can obtain more information about, and the disciplinary = record of,=20 any FINRA-registered broker or brokerage firm by using FINRA's = BrokerCheck.=20 FINRA makes BrokerCheck available at no charge. In 2009, members of the = public=20 used this service to conduct 18.5 million reviews of broker or firm = records.=20 Investors can access BrokerCheck at www.finra.org/brokercheck = or by=20 calling (800) 289-9999.

FINRA, the Financial Industry Regulatory Authority, is the largest=20 non-governmental regulator for all securities firms doing business in = the United=20 States. FINRA is dedicated to investor protection and market integrity = through=20 effective and efficient regulation and complementary compliance and=20 technology-based services. FINRA touches virtually every aspect of the=20 securities business=E2=80=94from registering and educating all industry = participants to=20 examining securities firms; writing and enforcing rules and the federal=20 securities laws; informing and educating the investing public; providing = trade=20 reporting and other industry utilities; and administering the largest = dispute=20 resolution forum for investors and registered firms. For more = information,=20 please visit our Web site at http://www.finra.org/index.htm.

FINRA

For=20 Release:Contacts: Thursday, March 18, 2010Nancy Condon (202) = 728-8379Herb=20 Perone (202) 728-8464

Dallas-based Provident Asset Management Expelled for Marketing = Fraudulent=20 Private Placements Offered by Affiliate in Massive Ponzi = Scheme

FINRA Continues Nationwide Initiative Investigating Broker-Dealers = Engaged=20 in Private Placements

For=20 Release:
Contacts:
Thursday, March 18, 2010
Nancy Condon (202) = 728-8379
Herb=20 Perone (202) 728-8464