Category Archives: Provident Royalties

Plagued by legal woes involving private-placements sales in Medical Capital Holdings and Provident Royalties, Securities America may soon have a new owner. As reported April 25 by Investment News, parent company Ameriprise Financial is looking to sell the troubled independent broker/dealer.

“In reporting its first quarter financial results this afternoon, Ameriprise management said it was looking to shed Securities America – the 17th largest independent broker-dealer in the industry according to Investment News data, which it acquired in 1998. Ameriprise indicated the potential sale of the firm would not have an impact on its $150 million settlement with investors suing the firm over private placements that have gone bust,” the article said.

In recent months, sales of private placements have been under the microscope by the Financial Industry Regulatory Authority (FINRA). Evidence of the new scrutiny became apparent in early April, when FINRA imposed fines and disciplinary actions against a number of firms that sold investments in Medical Capital Holdings and Provident Royalties.

FINRA’s disciplinary actions focused on the failure of broker/dealers to investigate the private placements being sold by their firms. Both Medical Capital and Provident Royalties were charged with fraud by the Securities and Exchange Commission (SEC) in July 2009.

Private placements are high-commission products, oftentimes producing hefty fees and commission for broker/dealers of up to 8%.

Broker/dealers involved in sales of private placements have been put on notice by the Financial Industry Regulatory Authority (FINRA). In the future, the regulator says it will be stepping up its oversight of private-placement deals.

Evidence of the new scrutiny became apparent last week, when FINRA imposed fines and disciplinary actions against a number of firms that sold investments in Medical Capital Holdings and Provident Royalties.

As reported April 10 by Investment News, FINRA’s recent actions focused on the failure of broker/dealers to investigate the private placements being sold by their firms. Both Medical Capital and Provident Royalties were charged with fraud by the Securities and Exchange Commission (SEC) in July 2009.

Private placements are high-commission products, yielding broker/dealers fees of 7% or 8%.

“Senior officials at these firms failed to fulfill their responsibilities to customers by not conducting reasonable investigations of these unrelated offerings, especially in light of multiple red flags suggesting liquidity concerns, missed interest payments and defaults,” said Brad Bennett, executive vice president and chief of enforcement for FINRA.

“FINRA will continue to look closely at sales of both affiliated and unaffiliated private placements to determine whether the selling firms fulfilled their responsibility to customers. Broker-dealers and the executives should have looked at the private-placement offerings much more closely,” Bennett said.

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.

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.

Embattled broker/dealer Securities America was handed a legal victory today when a federal judge decided to combine private-placement claims involving Medical Capital Holdings and Provident Royalties with two class actions.

As reported Feb. 18 by Investment News, Judge W. Royal Furgeson Jr. ordered Securities America to create a $21 million settlement fund for investors who are suing the broker/dealer in the two class actions. The ruling is seen as a victory for Securities America because it limits the company’s liability in the private-placement arbitration cases.

Securities America, which is owned by Ameriprise Financial Inc., sold about $700 million of private placements issued by Medical Capital Holdings and $18 million of shares in Provident Royalties.

Judge Furgeson has placed a temporary restraining order on three Financial Industry Regulatory Authority (FINRA) claims against Securities America. The investors who’ve filed those claims are seeking $4.8 million in damages for buying private placements issued by Medical Capital and Provident, both of which were sued by the Securities and Exchange Commission (SEC) for fraud in July 2009.

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

Sales of private placements in Provident Royalties has gotten yet another broker/dealer in hot water. This time, it’s National Securities Corp., with the broker/dealer facing disciplinary action by the Financial Industry Regulatory Authority (FINRA) over sales of private placements gone bad.

As reported Feb. 17 by Investment News, National Securities says it received a Well Notice from FINRA in January. Receipt of a Well Notice indicates enforcement action on the part of a regulator is likely imminent.

National Securities sold approximately $3.7 million of private placement issued by Provident Royalties. In July 2009, the Securities and Exchange Commission (SEC) sued Provident for fraud.

According to FINRA’s Broker Check Web site, National Securities received the Wells notice for violations of product suitability rules, e-mail supervision rules, and standards of commercial honor and principles-of-trade.

Earlier this month, another broker/dealer, Workman Securities Corp., also was in the news over private-placement sales involving Provident Royalties and Medical Capital Holdings. In a settlement with FINRA, Workman agreed to pay $700,000 for partial restitution to more than a dozen clients who had sued the firm over investments in the two companies.

Like Provident, Medical Capital was charged with fraud by the SEC in July 2009.

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

Workman Securities, a big seller of private placements in Medical Capital Holdings and Provident Royalties, has reached an agreement with the Financial Industry Regulatory Authority (FINRA) to settle issues over the deals. The broker/dealer will pay $700,000 for partial restitution to more than a dozen clients with legal claims against Workman for sales of the risky investments involving Med Cap and Provident.

Both Medical Capital and Provident Royalties were charged with fraud by the Securities and Exchange Commission (SEC) in the summer of 2009.

As reported Feb. 14 by Investment News, Workman’s insurance carrier, Catlin Specialty Insurance Co., has paid $2.3 million to various clients who’ve sued the firm.

Workman Securities is one of many broker/dealers that sold investors on risky private-placement deals involving Medical Capital and Provident Royalties. Workman reps sold just over $9 million of private placements in Provident, according to U.S. bankruptcy court filings.

According to FINRA’s Broker Check Web site, Workman allegedly was lacking in the supervision and due diligence department at the time it sold the private placements.

“The firm failed to have reasonable grounds to believe that a private placement offered by an entity pursuant to Regulation D was suitable for any customer after the firm received red flags that the entity had financial issues and was not timely making interest payments,” the site alleges.

Broker Check goes on to say: “[Workman] failed to enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulation and Finra rules in connection with the sale of the private placement offered by the entity pursuant to Regulation D. The firm failed to conduct adequate due diligence of the private placement offered by the entity pursuant to Regulation D.”

If you have a story to tell involving Medical Capital Holdings or Provident Royalties, please contact a member of the securities fraud team at Maddox, Hargett & Caruso.

Arbitration claims connected to Medical Capital Holdings and Provident Royalties and other risky deals – including those involving non-traded REITs – could grow much bigger in number following a recent regulatory decision by the Securities and Exchange Commission (SEC).

The new regulation gives investors the option of choosing an all-public arbitration panel to have their disputes with brokers reviewed. In other words, investors can select a panel composed entirely of individuals who have no connection to the securities industry. Typically, the three-person panel is made up of two public arbitrators and one industry professional.

As reported Feb. 6 by Investment News, the SEC’s ruling comes on the heels of a pilot program by the Financial Industry Regulatory Authority (FINRA) that allowed certain investors the choice of substituting an industry arbitrator with a public panelist.

The rule change does not affect disputes among brokerage firms or between brokers and their firms.

“This is a tremendous step in the right direction,” said Peter Mougey, president of the Public Investors Arbitration Bar Association, which represents plaintiff’s attorneys, in the Investment News article.

If you have a concern about your investments with your independent broker/dealer, please contact a member of the securities fraud team at Maddox, Hargett & Caruso.

It’s been a tumultuous year for independent broker/dealers, with many closing their doors over private-placement deals gone bad, rising legal costs, and capital violations. Now, it appears QA3 Financial Corp. has become the latest B-D to bite the dust.

With bankruptcy looming, as well as a possible net capital violation, QA3 Financial told 400 reps last week of its impending future plans. According to a Feb. 4 story by Investment News, Steve Wild, QA3’s owner and CEO, delivered the news via an email approximately one hour after the market closed.

“In light of the arbitration award rendered against QA3 on January 14, and the fact that our errors and omissions carrier has not yet provided coverage set forth in our policy, we have made the difficult decision to cease conducting business as a broker-dealer effective as the close of business on February 11,” the email read.

QA3’s exit from the brokerage business follows at least two dozen firms that have either shut down or were forced to close their doors in the past year.

QA3’s financial issues have been in the making for some time. The broker/dealer was a big seller of private placements in Medical Capital Holdings and Provident Royalties LLC – both of which face fraud charges from the Securities and Exchange Commission (SEC).

In September, bankruptcy rumors began to circulate because of a dispute between QA3 and its insurance carrier and the amount of coverage that was needed for the growing number of legal claims from investors over sales of high-risk private placements.

Last month, a Financial Industry Regulatory Authority (FINRA) arbitration panel ruled in favor of an elderly couple who had a filed a claim against QA3 for real estate deals that had soured. The arbitration award was for $1.6 million.

If you have a story to tell involving private placement deals or independent broker/dealers issues, please contact a member of the securities fraud team at Maddox, Hargett & Caruso.

Private-placements deals in Medical Capital Holdings and Provident Royalties have become a bone of contention for the Financial Industry Regulatory Authority (FINRA), which plans to focus new attention on the broker/dealers responsible for selling the opaque and illiquid private investments to investors.

As reported Feb. 2 by Investment News, private-placements are on FINRA’s hot-button issue list because of the devastating financial losses they’ve caused for investors in the past year. In many instances, the losses are tied to the broker/dealers selling private placements as suitable investments for their clients, yet failing to perform appropriate due diligence on certain private offerings.

Two such offerings include private placements in Medical Capital and Provident Royalties. Both companies were charged with securities fraud by the Securities and Exchange Commission (SEC) in 2009 for misrepresentation and misappropriating hundreds of millions of dollars of investors’ money.

A number of brokers/dealers that sold both products also face lawsuits by regulators, as well as arbitration claims filed by investors.

James Shorris, executive vice president and executive director of enforcement for FINRA, says oversight of private placements will be a “major, major, major initiative” at FINRA in the future. During his remarks at the annual meeting of broker/dealer members of the Financial Services Institute on Feb. 2, Shorris specifically named private placements associated with Medical Capital Holdings and Provident Royalties LLC.

In addition to private placements, Shorris says FINRA also will step up its scrutiny of non-traded REITs, as well as other exotic investments such as reverse convertibles and leveraged exchange-traded funds.