Embattled broker/dealer Securities America has a new leader at the helm: Jim Nagengast. One of his first assignments as the new CEO: Dealing with the problems that Securities America brokers created when they unloaded Medical Capital private placements on investors from 2003 to 2008.
In January, Massachusetts Secretary of State William Galvin filed a lawsuit against Securities America, accusing the firm of misleading investors who bought the investments. According to the complaint, 400 Securities America representatives and advisers sold almost $700 million private placements issued by Medical Capital Holdings.
In July 2009, the Securities and Exchange Commission filed fraud charges against Medical Capital.
The Massachusetts lawsuit alleges that Securities America failed to tell investors key information about the private placements and, specifically, the financial condition of Medical Capital itself. In total, Medical Capital issued $2.2. billion in notes; about half are in default. Many broker/dealers sold the notes, but Securities America, which has more than 1,900 representatives and advisers, is the largest broker/dealer to have sold them.
As reported July 26 by Investment News, an administrative hearing at the Massachusetts Securities Division is set for Aug. 30. According to the story, Nagengast believes Securities America performed its due diligence in selling Medical Capital notes to investors.
There may be evidence to the contrary, however. The Massachusetts lawsuit cites several e-mails from Nagengast in 2005 stating that the firm should stop selling the product until it received audited financials from Medical Capital.
According to the complaint, Nagengast wrote the following in one e-mail:
“We simply have to tell [Medical Capital] that if they don’t have financials by [a specified] date, we will stop distributing the product on that date. Then they can decide if it’s worth spending $50,000 to have [the audit] done. If they won’t spend the money, that should give us concern.”
If you have a story to tell involving Securities America and/or Medical Capital Notes, please contact a member of the securities fraud team at Maddox, Hargett & Caruso.