Monthly Archives: October 2009

A recently filed lawsuit claims advisers with Securities America chose to ignore obvious red flags in an effort to sell hundreds of millions of dollars’ worth of securities notes in Medical Capital Holdings, a California medical receivables company that now faces securities fraud charges from the Securities and Exchange Commission (SEC).

According to the lawsuit filed last week on behalf of Ilene Grossbard, an investor in Florida who invested $112,000 in a Medical Capital deal, Securities America sold offerings of Medical Capital as late as October 2008. Several months earlier, however, W. Thomas Cross, an executive with Securities America, wrote to a Medical Capital official expressing fear of “a panicked run on the bank” about Medical Capital. Those fears did not stop Securities America from selling the Medical Capital notes.

“Securities America apparently was not all that alarmed because less than a month later, in August 2008, [the firm] signed on to distribute, promote, offer and sell still more Med Cap securities, this time on behalf of the sixth and final offering by Med Cap, Medical Provider Funding Corp. VI,” the lawsuit says.

As reported Oct. 5 by Investment News, in addition to selling the sixth deal through October, Securities America continued selling Medical Capital’s previous offering, Medical Provider Financial Corp. V. The firm also allegedly neglected to warn investors of the potential dangers in the Medical Capital notes.

IIn July, the SEC charged Medical Capital Holdings with fraud in connection to the sale of $77 million worth of private securities. Since then, a court-appointed receiver, Thomas Seaman, has conducted an inventory of MedCap’s assets and reveals that of $80 million in verified accounts receivable, $74 million is more than 180 days old. An additional $543 million – 87% of all the accounts receivable on MedCap’s books – are “non-existent.”

Grossbard’s lawsuit is seeking class action status.

The lawsuit also names Securities America’s parent company, Ameriprise Financial, as a defendant.

Tell us about your situation with Securities America by leaving a message in the Comment Box below or via  the Contact Us form. We want to consult with you about possible legal options.

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.

Tell us about your situation with Securities America by leaving a message in the Comment Box below or via the Contact Us form. We want to consult with you about possible legal options.

Smaller brokerage firms and broker/dealers often fly under the radar when it comes to internal compliance and enforcement, despite the fact that many of these firms have serious arbitration and customer complaints lodged against them. Case in point: Woodbury Financial Services.

According to information listed in the BrokerCheck section of the Financial Industry Regulatory Authority (FINRA), in June 2009 the Vermont Securities Division charged and fined Woodbury Financial Services for violations involving supervisory failures. The incident in question concerned two Woodbury Financial agents who were alleged to have made unsuitable recommendations to clients regarding variable annuity contracts.

Earlier in 2009, Woodbury Financial was again sanctioned and fined by securities regulators. This time, the Arizona Corporation Commission fined Woodbury $250,000, as well as ordered the company to reimburse investors for the losses they suffered in a scam conducted by two former Woodbury Financial agents, Mayra Jeanette Angulo and Mark Islas of Tucson. The Commission ordered the duo to pay $914,317 in restitution and $150,000 in administrative penalties for defrauding at least 30 investors, some of whom were residents of Mexico.

According to the Commission, Angulo and Islas opened brokerage accounts and post office boxes for some customers and, in several instances, used their own post office boxes for clients or used the same post office box for several different customers. While distributing fictitious brokerage accounts statements, Angulo and Islas funneled money from their customers’ accounts to themselves and family members.

In the Arizona case, Woodbury Financial Services was forced to reimburse investors some $2 million.

Other serious marks on Woodbury’s CRD record include violations of the Missouri Securities Act of 2003 for allowing several brokers affiliated with the company to conduct business in the state of Missouri without having first attained proper licensing.

In terms of arbitration disputes, in 2000, FINRA (Case No. 00-05078) awarded an investor more than $150,000 in damages for her claim against Woodbury Financial on causes of action that included violation of the Georgia Securities Act; violations of the federal securities laws; breach of contract; common law fraud; breach of fiduciary duty; and negligence and gross negligence.

In another claim (Case No. 01-06167), this one settled in 2001, FINRA found Woodbury liable for more than $110,000 in a claim involving misrepresentation, breach of fiduciary duty, failure to supervise and unsuitability.

Woodbury Financial Services is a subsidiary of The Hartford Financial Services Group of Hartford, Conn. As an independent broker/dealer, Woodbury Financial offers life insurance, variable annuities, alternative investments, and brokerage services. The company has more than 1,850 independent representatives located throughout the United States.

Tell us about your relationship with Woodbury Financial Services. Please fill out the Contact Us form, or leave a comment below. We want to hear your story and consult with you about your options.

In September, the Financial Industry Regulatory Authority (FINRA) announced that Robyn Lynn O’Hara, formerly of WFG Investments, had been barred from FINRA for securities violations. According to FINRA’s findings, O’Hara engaged in multiple trades in customers’ accounts at her member firms without customers’ authorization or consent. The findings further stated that O’Hara continued unauthorized trading in one account even after the customer instructed her to cease all trading.

Information posted in FINRA’s BrokerCheck provides additional insight into O’Hara’s professional background, with allegations of unauthorized trades and unsuitable investments dating as far back as 1992 when she working as a broker at J.W. Gant & Associates. In that particular case (FINRA Case No. 92-01617), FINRA eventually ruled O’Hara and J.W. Gant jointly liable for their actions, awarding some $6,500 in damages to the claimant.

That same year, 1992, O’Hara again faced allegations by FINRA of using high-pressure sales tactics and failing to execute a client’s instructions to sell certain securities in his account. O’Hara was fined $20,000 and suspended from association with FINRA for 20 days.

In another case (FINRA Case No. 09-02650) filed in July 2009. O’Hara is again accused of misrepresentation by a former client. The investor also is suing WFG Investments for failing to supervise O’Hara. The case is still pending with FINRA.

In total, O’Hara’s CRD shows at least five regulatory events related to securities violations. In addition, she’s been named in at least three customer complaints tied to securities fraud.

If you have questions about investments made with Robyn Lynn O’Hara or WFG Investments, please fill out the Contact Us form or leave a comment below. We want to hear your story and consult with you about your options.

Breach of fiduciary duty. Misallocated portfolios. Misrepresentation. In a nod to the growing dissatisfaction felt by investors over the actions – or inactions – of their financial advisers and stock brokers, new arbitration cases filed with the Financial Industry Regulatory Authority (FINRA) soared 65%, to 4,991, through August 2009, after climbing to 3,018 for the same period last year. The latest figures put new filings with FINRA on track to hit 7,000 by year end, up from 4,982 in 2008.

“I don’t anticipate it slowing down this year or next,” said Linda Fienberg, president of dispute resolution for FINRA, in a July 14, 2009, story appearing in the Washington Post. Fienberg added that more investors are prevailing in their cases this year than they had in the past.

The No. 1 complaint in investors’ claims through August 2009 is breach of fiduciary duty, followed closely by misrepresentation.

Frank Bluestein, a Detroit-area financial adviser, has been charged by the Securities and Exchange Commission (SEC) of luring elderly investors into refinancing their home mortgages in order to fund investments in a $250 million Ponzi scheme operated by Edward May and his company, E-M Management Company LLC (E-M). Bluestein’s latest run-in with authorities isn’t “new” news, however. More than two years ago, Michigan state securities regulators and the SEC were investigating Bluestein for the very crime he now is alleged to have committed. Bluestein denied similar allegations in a 2008 class-action lawsuit filed by investors who allege Bluestein bilked them out of millions of dollars. That case is still pending.

According to the SEC’s Sept. 28 complaint, regulators allege that Bluestein acted as the single largest salesperson in May’s Ponzi scheme and that Bluestein’s “role” was to specifically target retirees and elderly investors into attending so-called “investment seminars” held in Michigan and California. The purpose of the seminars was to lure potential investors into putting their money into May’s company, E-M.

“Bluestein convinced elderly investors to refinance their homes to invest in securities that he falsely claimed were safe,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “His lies, false assurances, and unscrupulous tactics put many investors at risk of losing not only their life savings, but also their homes.”

Bluestein’s past gets even more sordid. A Nov. 27, 2007, article by Registered Rep reports that after Bluestein was fired from the brokerage firm GunnAllen Financial in October for reportedly selling unregistered securities, Bluestein set up shop down the street and began working under a new name, “Frank Julian,” as part of a so-called “research team” at a company called Freedom Road. (The name listed now, however, on Freedom Road’s Web site is, in fact, Frank Bluestein.) According to the Web site, Freedom Road provides stock selection and market education to individuals. Its advertising moniker is: Luck is not an investment strategy.

Information posted by Freedom Road on its Web site touts Bluestein as “picking hot stocks for over 40 years,” with a “unique approach [to finding] big opportunities in both dividend paying stocks and growth stocks with limited risk.” “After many years as one of the nation’s leading financial advisors, Frank is now sharing his million dollar secrets exclusively with members of Freedom Road. Frank’s vision is to share his hard earned experience and success with investors on a global scale.”

It’s what Freedom Road didn’t say about Frank Bluestein that has come back to haunt investors. Bluestein isn’t even registered with the Financial Industry Regulatory Authority (FINRA). According to the Registered Rep article, Bluestein’s CRD report shows that in October 2007, 10 customer disputes had been logged against him totaling some $1.6 million in alleged damages. On Oct. 12, the Michigan Office of Financial Regulation notified GunnAllen, Bluestein’s former employer, that Bluestein was under investigation. Shortly thereafter, Bluestein was fired from GunnAllen.

Fast forward to Sept. 28, 2009. The SEC charges Bluestein of civil fraud, sale of unregistered securities and other violations in connection to helping orchestrate a multimillion-dollar Ponzi scheme. Specifically, the SEC alleges that Bluestein facilitated May’s fraudulent scheme by raising approximately $74 million from more than 800 investors through the sale of E-M securities over a five-year period. Bluestein, through his company Maximum Financial, conducted numerous investment seminars to find new E-M investors.

Based on the SEC’s complaint, Bluestein, 59, allegedly misrepresented to investors that the investments he pitched were low-risk and falsely claimed he had conducted adequate due diligence about the investments. He also apparently left out one other key detail: Bluestein received at least $2.4 million in commissions from May and E-M, in addition to the $1.4 million in disclosed compensation he received from investor funds.

Tell us about your relationship with E-M Management Company. We want to hear your story. Please fill out the Contact Us form, or leave a comment below. We can consult with you regarding your options.