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Secondary Responsibility for Losses in Aequitas Securities Class Action

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How is it that a company touted as a stable, secure investment “collapsed in spectacular fashion and was shut down by the Securities and Exchange Commission” (SEC)? Aequitas did so, losing its investors hundreds of millions of dollars. The complaint for this class action alleges that secondary responsibility for the losses belongs to other companies who in various ways aided, promoted, or allowed its misrepresentations.

The class for this action is all persons who bought Aequitas securities on or after June 9, 2010.

The complaint claims that more than 1,500 investors are owed some $6 million for the securities they bought from Aequitas. The plaintiffs in this action were not permitted to sue the Aequitas companies and their principals because of a litigation stay, but Oregon state law permits them to bring this suit claiming joint-and-several secondary liability and asking for the return of their invested funds with interest.

The complaint alleges that the securities were not properly registered under Oregon law and that the companies were able to sell them only through “extensive and pervasive” misrepresentations and omissions. 

Among other things, the investments were represented to be stable, secure, and liquid, with “strong asset coverage,” and that the value of the assets backing the securities “substantially exceeded” the collateral for loans. Aequitas said that the money it gained from investors would be used to buy stable and valuable assets from “financially strong institutions.” 

The complaint claims that none of this was true. Aequitas used investor funds not to buy strong assets but, as in a classic Ponzi scheme, to satisfy the redemptions of and interest payments to other investors. The company’s assets did not generate enough income to cover its debt obligations. According to the complaint, the company tried to cover this over a period of six years “by constructing a morass of interrelated companies and frequent inter-company transactions.”

In the meantime, “Aequitas implemented a façade … throwing lavish parties, opening expensive new offices, hiring new employees, traveling by private plane … and reporting impressive financial results.”

Who are the parties named as sharing responsibility for this charade?

Deloitte & Touche, LLP performed auditing and accounting for Aequitas and permitted it to sell the securities at issue. It prepared audited financial statements for the company.

EisnerAmper, LLP was Deloitte & Touche’s predecessor.

Sidley Austin, LLP and Tonkon Torp, LLP provided Aequitas with legal services for the securities at issue.

TD Ameritrade, Inc. recommended and referred investors to financial advisors so that they could buy the securities at issue, and it served as custodian for some of the securities. 

Integrity Bank & Trust offered and solicited sales of more than $100 million of the securities.

Duff & Phelps, LLC “performed valuation services and prepared appraisal reports” that were used for the sale of Aequitas securities.

The complaint brings suit under Oregon securities laws.

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