Securities America, a subsidiary of Ameriprise Financial, has been sued by Ilene Grossbard of Sarasota, Florida, over allegations that the Omaha-based brokerage failed to warn her and other investors about what she says was a multibillion-dollar Ponzi scheme involving sales of notes in Medical Capital Holdings. According to the complaint, Grossbard bought two promissory notes from Securities America last year for $112,000. The notes were issued by Medical Provider Funding Corp. V, a subsidiary of Tustin, Calif.-based Medical Capital Holdings – the same company that the Securities and Exchange Commission (SEC) charged with securities fraud in July.
Since December 2003, Medical Capital Holdings has raised more than $2 billion from selling the notes to some 20,000 investors. The notes included those issued by Medical Provider Funding Corp. V, which as of March 2009 had more than $400 million in outstanding notes to 4,270 investors.
Grossbard’s lawsuit against Securities America alleges that it failed to detect, probe or make investors aware of the numerous red flags that pointed to the alleged Ponzi scheme at Medical Capital Holdings.
Grossbard is seeking class-action status in her lawsuit.
On Sept. 14, 2006, a National Association of Securities Dealers arbitration panel (now the Financial Industry Regulatory Authority) fined Securities America $2.5 million for failing to adequately supervise one of its brokers, David L. McFadden, who had been charged with securities fraud for allegedly luring long-term employees of Exxon Corporation into retiring prematurely with unreasonable and exaggerated promises of high returns from reinvested funds from their company retirement plans.
In addition to the fines, the arbitration panel ordered Securities America to pay $13.8 million in restitution to 32 former Exxon employees.
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