Monthly Archives: March 2011

A deal may in the works between Securities America and investors who lost hundreds of millions of dollars from soured private-placement deals in Medical Capital Holdings and Provident Royalties. The story was first reported by Investment News on March 28.

Financial problems related to investor lawsuits in the private placements have been a growing source of concern for the broker/dealer. Now, it appears a settlement offer could be on the table.

Details of the offer have not been revealed.

Securities America sold about $400 million in private placements in Medical Capital Holdings. In July 2009, the Securities and Exchange Commission (SEC) charged the company with fraud, accusing it of essentially running a Ponzi scheme. That same month, the SEC also charged Provident Royalties with fraud.

Earlier this month, a federal judge denied a proposed $21 million settlement between Securities America and the plaintiffs in the case. If the settlement had occurred, investors would likely have received only pennies on the dollar.

And while Securities America may not have enough capital to pay plaintiffs 100 cents on the dollar, its parent company, Ameriprise, does.

As reported in the Investment News article, Securities America has reportedly informed its 1,800 brokers of the proposed settlement.

The Financial Industry Regulatory Authority (FINRA) has ordered Southwest Securities to pay $500,000 to resolve claims involving violations of Municipal Securities Rulemaking Board rules and using paid consultants to solicit business.

As reported March 13 by Investment News, the unit of SWS Group “paid five people, including three former officials of Texas municipal bond issuers, to solicit business on its behalf from October 2006 through April 2009. The consultants, who were paid a total of $200,000, helped Southwest obtain 24 securities underwritings and two roles as financial adviser to Texas municipalities.”

Southwest settled FINRA’s claims without admitting or denying any wrongdoing.

If you have suffered investment losses with Southwest Securities and wish to discuss filing an individual arbitration claim with FINRA or have questions about these investments, please contact us.

Late last Friday, Securities America received news that a federal judge would not be approving the broker/dealer’s request for a $21 million class action settlement. The case involves soured private-placement deals in Medical Capital Holdings and Provident Royalties.

As reported March 19 by Investment News, the decision has been closely watched by hundreds of investors who are suing the firm for financial losses they incurred in Med Cap and Provident. If the settlement had been approved, investors would have been forced to drop their arbitration claims and join the class action lawsuit.

And in doing so, investors would have likely received only pennies on the dollars for their losses.

In July 2009, the Securities and Exchange Commission (SEC) charged both Medical Capital and Provident Royalties with fraud. Two state securities regulators – Montana and Massachusetts – also are suing Securities America.

During the class-action hearing, Judge W. Royal Furgeson Jr. centered in on the relationship between Securities America and its parent company, Ameriprise Financial Inc. Among other things, Furgeson noted that Ameriprise benefited from “positive revenue growth” at Securities America while it insulated itself from the potential liability of Securities America brokers who sold the private placements to investors.

Securities America CFO Kelly Windorski testified today that the broker/dealer could potentially go under if a settlement in a $21 million class action lawsuit is not reached. Judge W. Royal Furgeson Jr. is expected to make his ruling later tonight, according to a March 18 article by Investment News.

The class action lawsuit, as well as numerous arbitration claims filed with the Financial Industry Regulatory Authority (FINRA), involves private-placement deals in Medical Capital Holdings and Provident Royalties. Both firms were charged with fraud by the Securities and Exchange Commission (SEC) in July 2009.

If the judge in the class action approves a settlement in the case, investors who lost millions of dollars from Med Cap and Provident investments sold by Securities America are likely to receive only 5 cents on the dollar for their losses.

Disgraced businessman Tim Durham has been arrested on charges of defrauding at least 5,000 Indiana and Ohio investors out of hundreds of millions of dollars. Durham, who is co-owner of Fair Financial, is accused of running a $200 million Ponzi scheme. The case against Durham is the largest corporate fraud case in Indiana’s history.

For more than two years, Durham has been the subject of a federal investigation for allegedly using Fair Finance – and the money that investors put into Fair – as his personal piggy bank. In November 2009, the FBI raided the offices of Fair Financial, as well as Durham’s other business, Obsidian Enterprises.

Durham’s March 16 arrest occurred at him home in West Hollywood, Calif., at about 2 a.m. He is scheduled to appear in a Los Angeles courtroom later this evening, where he intends to plead not guilty to one count of conspiracy to commit wire and securities fraud, 10 counts of wire fraud and one count of securities fraud. According to news report, Durham will waive extradition to Indiana.

The Securities and Exchange Commission (SEC) may pursue civil charges against Daniel Mudd, former CEO of Fannie Mae, over allegations that the mortgage giant failed to tell investors about the extent of its exposure to risky loans.

On March 14, Mudd, who is now CEO of Fortress Investment Group, received a Wells Notice from the SEC. Receipt of a Wells Notice indicates civil charges are likely forthcoming.

Mudd was fired from Fannie Mae in 2008. That same year, the federal government seized control of Fannie Mae and Freddie Mac.

At issue is how Fannie Mae informed investors about the mounting losses it sustained from high-risk mortgage loans and how those loans were valued. The SEC says exposure to the mortgages was drastically understated.

Over-concentration is the opposite of diversification. An over-concentrated portfolio means too much of your money is tied up in one security or asset class, such as a single stock, bond, mutual fund, or other investment vehicle. Over-concentration happens if you buy or sell too many shares of a stock in one company. It also occurs when you invest too much in one market sector (remember the dot.com era?).

A more recent example of over-concentration occurred last year over sales of reverse convertible notes. In February 2010, the Financial Industry Regulatory Authority (FINRA) fined H&R Block Financial Advisors, Inc. (n/k/a Ameriprise Advisor Services, Inc.) $200,000 for failing to establish adequate supervisory systems and procedures for sales of the notes to retail customers. FINRA also fined and suspended H&R Block broker Andrew MacGill for making unsuitable sales of the investments to a retired couple. The firm was ordered to pay $75,000 in restitution to the couple for losses they incurred.

If a substantial portion of your money is tied up in one investment, you are taking on a considerable amount of risk. When it comes to investing, the rule of thumb is never to put all of your eggs – i.e. your money – in one basket. Diversification is key, something that a good stockbroker or investment advisor should know.

A good investment advisor also will take into consideration your risk tolerance levels, as well as your overall investing objectives. If a broker recommends an investment that falls outside of either of these two areas, you may have reason for concern. Most important, you could be setting yourself up for financial disaster.

Over-concentration complaints by investors are on rise. If you believe you or a family member suffered substantial investment losses as a result of over-concentration, please contact us.

Private-placement deals pushed by Securities America in Medical Capital Holdings and Provident Royalties have left investors stranded on a financial limb. Now, they have a new worry – and that is whether to resolve their complaints through arbitration or roll their claims into two existing class-action lawsuits again Securities America.

Ewald Groetsch is one of those investors facing such a dilemma. As reported March 4 by the New York Times, Groetsch lost $500,000 after investing in Medical Capital Holdings which, like Provident Royalties, was charged with fraud by the Securities and Exchange Commission (SEC) in 2009.

According to the New York Times story, Groetsch – who suffers from dementia – became lonely after his wife died in 2003 and struck up a relationship with a broker from Securities America. Groetsch eventually put the majority of his portfolio into a risky security – i.e. Medical Capital.

As for the Securities America broker, he portrayed the investment as “safe and secure.” That wasn’t the case, however, and Groetsch ultimately lost his entire investment.

Groetsch has since filed an arbitration claim with the Financial Industry Regulatory Authority (FINRA).

The lawyers in the class-action case involving Medical Capital and Provident Royalties contend that investors’ arbitration claims could threaten the financial position of Securities America and its ability to pay for a proposed settlement. The plaintiffs’ lawyers disagree, stating that such reasoning is misleading.

Earlier this year, arbitration proved successful for at least one investor who sued Securities America. In January, FINRA awarded Josephine Wayman nearly $1.2 million for her claim against the broker/dealer.

Fannie Mae. Freddie Mac. Over the past 70 years, they’ve guaranteed some 90% of all new home mortgages in the United States. Today, Fannie and Freddie are under conservatorship – a move that’s costing taxpayers more than $150 billion.

And no one is more bitter than the thousands of investors who purchased preferred shares in Fannie Mae and Freddie Mac stock. In 2007 and 2008, investment firms like UBS, Morgan Stanley, Citigroup, Merrill Lynch and others sold billions of dollars of preferred stock issued by the two mortgage giants. In lawsuits that have since followed, investors allege that they never knew about the deteriorating financial health of Freddie Mac and Fannie Mae – a decline that was spurred by the two companies’ appetite for risky lending, excessive leverage and investments in toxic derivative products.

When Fannie Mae and Freddie Mac were placed in conservatorship by the federal government, investors with preferred shares watched their investments become essentially worthless.

Many of these investors have filed arbitration claims against the brokerages that they say misrepresented various series of preferred stock in Fannie Mae and Freddie Mac. If you are an institutional investor or retail investor and were misled about Fannie Mae or Freddie Mac preferred shares, we want to hear your story. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA). Please contact us.