Category Archives: Securities America

For the second time in less than a week, another broker/dealer announced plans to suspend sales of American Realty Capital Trust V, or ARC V. As reported July 19 by Investment News, the broker/dealer, National Planning Corp., cited continuing due diligence as the reason for the halt in sales.

Last Friday, Securities America told its registered reps it was no longer offering ARC V because of a risk of overconcentration.

National Planning Corp. said that its concerns over ARC V stem to another American Realty Capital REIT, American Realty Capital Trust IV. In June, that REIT announced plans to purchase 986 properties from an affiliate of General Electric Capital Corp. for $1.45 billion. The majority of those properties are fast-food and casual-dining establishments.

“Due to concerns with style drift, deviations from the prospectus and growing pains, which all have implications for [ARC V], NPC decided to suspend sales” of the REIT, said an e-mail to NPC reps from the firm’s products group. The same e-mail noted that NPC was adding to its selling list another American Realty Capital REIT, the Phillips Edison – ARC Shopping Center REIT II Inc.

“Based upon the GE transaction, the portfolio for [ARC IV] does not match the [REIT’s] stated strategy in terms of the average credit rating of the portfolio,” according to the e-mail. “Additionally, [ARC IV] appears to deviate from the marketed strategy in terms of the types of tenants and adding value through aggregation.”

Citing a risk of over-concentration, a  top broker/dealer, Securities America, has announced that it will no longer sell the non-traded real estate investment trust American Reality Capital Trust V.

Also known as ARC V, the REIT is a big seller. Brokers sold $406.6 million of ARC V between its launch in April through June 30.

As reported by Investment News, an important risk management tactic being implemented by many broker/dealers, including Securities America, is maintaining certain thresholds that limit a firm’s total  investment in any one alternative product or sponsor.

In the past, Securities America has been burned by too many sales of certain illiquid, alternative investment deals. From 2003 to 2007, Securities America was the biggest seller of private placement notes issued by Medical Capital Holdings Inc., which was later revealed to be a $2 billion Ponzi scheme. Securities America brokers sold close to $700 million of the notes. The legal fallout from those sales ultimately resulted in Ameriprise Financial Inc. selling Securities America to Ladenburg Thalmann Financial Services in 2011.

In June, Securities America was one of five broker/dealers to announce settlements with Massachusetts Secretary of the Commonwealth William Galvin over improper sales of non-traded real estate investment trusts and agreed to pay at least $7 million in fines and restitution.

Earlier this week, Advisor Group, which is owned by American International Group, announced it was cutting its selling agreement with Cole Holdings Corp., another leading sponsor of net-lease non-traded REITs.

The collapse of Medical Capital Holdings has led to numerous lawsuits and arbitration complaints by investors against the brokerages that failed to perform their due diligence before selling them private-placement investments in the troubled company. Now, for what is believed to be a first, an individual has been criminally charged with securities fraud for his role in selling Med Cap notes.

Nine counts of securities fraud were filed Feb. 23 by the Weld County District Attorney’s Office against John Brady Guyette. According to the Weld County complaint, the former Colorado stockbroker sold $1.3 million of Medical Capital investments to investors between August and December 2008. During that time, Medical Capital was showing signs trouble and had already missed several payments to investors in certain note offerings.

As reported Feb. 27 by Investment News, the focus of the complaint against Guyette concerns allegations that he sold Medical Capital notes to investors after the company failed to make payments to investors.

One of those investors is Lucille Linde, 92, who lost her life savings in Medical Capital investments. She began investing in Medical Capital and with Guyette in 2005. Three years later, in August 2008, she invested $300,000 in Medical Capital VI, says the Investment News article.

“Linde reported that prior to writing the checks on Aug. 15, 2008, [she] had been told by a fellow MedCap investor, Borge Villemsun, that MedCap had been late in making principal and interest payments to [him],” the complaint reads. “Linde reported confronting [Mr. Guyette] with this information. Linde reported that [Mr. Guyette] assured [her] that Villemsun had been paid and that the MedCap VI investment was guaranteed safe.

“Linde was not aware that when [she] wrote the checks on Aug. 15, 2008, MedCap II had failed to make principal and/or interest payments due to MedCap II investors. [Mr. Guyette] failed to disclose this information to Linde.”

The Securities and Exchange Commission (SEC) filed fraud charges against Tustin-based Medical Capital Holdings in 2009, freezing its assets and appointing a receiver to oversee its financial books. A number of independent broker/dealers subsequently came under fire from regulators for failing to disclose key information about Medical Capital to investors.

Securities America was the independent broker/dealer subsidiary of Ameriprise. It was one of the broker/dealers of Medical Capital Investments, selling some $700 million of the private placements. In August 2011, the B-D was acquired by Ladenburg Thalmann Financial Services Inc. for a reported $150 million in cash.

Plagued by lawsuits and arbitration claims over sales in Medical Capital Holdings and Provident Royalties, broker/dealer Securities America has been sold to Ladenburg Thalmann Financial Services for at least $150 million in cash.

Ameriprise, the parent company of Securities America, revealed in April of its intention to sell the broker/dealer subsidiary.

In July 2009, the Securities and Exchange Commission (SEC) charged Medical Capital Holdings and Provident Royalties with fraud. Securities America was one of the largest sellers of the troubled private placements. Ultimately, clients of Securities America suffered an estimated $400 million in losses from the investments.

In April, Ameriprise offered a settlement of nearly $160 million to Securities America clients.

As reported Aug. 17 by Reuters, Miami-based Ladenburg – which owns other independent brokerages – agreed to make additional cash payments if Securities America meets certain targets in the next two years.

The purchase, which will be financed by another firm affiliated with Ladenburg Chairman Phillip Frost, is expected to be completed by December 2011.

There is some new information for Securities America clients who suffered losses from private placement investments in Medical Capital Holdings and Provident Royalties. On Aug. 4, U.S. District Court Judge W. Royal Furgeson Jr. signed an order to approve an $80 million settlement between Securities America and class action investors suing the broker/dealer over the failed investments.

Earlier this year, a separate $70 million settlement was reached with investors who had filed individual arbitration claims against some brokers.

As reported Aug. 14 by Investment News, approval of the settlement means Securities America reps and financial advisers who had tainted employment records because of open or pending investor arbitration claims from the MedCap and Provident sales will now see closure.

From 2003 to 2008, Securities America brokers sold about $700 million of Medical Capital private placements. Other broker/dealers sold the investments, as well, but Securities America was by far the biggest distributor of them.

In the summer of 2009, the Securities and Exchange Commission (SEC) charged both Medical Capital and Provident Royalties with fraud.

Reps for Securities America, the troubled broker/dealer whose name is now permanently linked to lawsuits and arbitration claims involving sales of failed private placements in Medical Capital Holdings, have been asked to sign a “letter of support” that they plan to remain with the firm. The unusual move has some people suggesting that Securities America is about to be sold.

Ameriprise Financial, the parent company of Securities America, announced in April of its plans to find a new buyer for the company.

As reported June 8 by Investment News, the letter of support to Securities America states the following:

“We are confident in the abilities of Securities America’s senior management team to navigate the company through these challenges and opportunities.

“We believe they will assist [parent company] Ameriprise in the selection of a new owner with the interests of the advisors and our clients firmly in mind.”

It then concludes: “We intend to stay with Securities America to see what opportunities will come from this process.”

Securities America has been embroiled in legal issues since July 2009, when the Securities and Exchange Commission (SEC) charged Medical Capital Holdings with fraud. Dozens of independent broker/dealers sold private placements in Medical Capital to investors, but Securities America was by far the product’s biggest distributor. It sold about $700 million worth of the notes to clients. Nearly half of that amount is now in default.

In April, Securities America reached a potential $160 million settlement with investors in a class-action law suit.

Jim Nagengast, CEO of embattled Securities America, claims that The Bank of New York Mellon Corp. and Wells Fargo Bank NA are suing the broker/dealer in an attempt to reduce their liability in the sale of failed private placements in Medical Capital Holdings.

The story, first reported May 29 by Investment News, cites an email to the Securities America advisers in which Nagengast reportedly claims that a pending settlement in a class action filed against Securities America, if approved, would wipe out the banks’ claims against the firm.

The Bank of New York Mellon Corp. and Wells Fargo Bank filed separate lawsuits against Securities America last month. Both banks were formerly trustees for Medical Capital Holdings.

The Bank of New York complaint states that the broker/dealers that sold private placements in Medical Capital breached their obligation to MedCap investors by selling an unsuitable product and failing to disclose the risks of the notes.

Bank of New York Mellon has sued 13 broker/dealers; Wells Fargo has sued six firms, as well as Ameriprise Financial, which owns Securities America.

In September 2009, two months after the Securities and Exchange Commission (SEC) charged Medical Capital with fraud, a group of Medical Capital investors sued The Bank of New York Mellon Corp. and Wells Fargo Bank in a class action lawsuit. The plaintiffs in that class action claimed in an amended 2010 complaint that the two trustees signed off on requests by Medical Capital executives to take $325 million in fees — despite documents for the notes indicating that fees were not supposed to come from investor funds.

From 2003 to 2008, dozens of independent broker/dealers sold private placements in Medical Capital, raising $2.2 billion. By far, Securities America is the biggest seller of Medical Capital notes, selling about $700 million.

In total, investors have lost more than $1 billion in principal. Today, regulators and the Medical Capital bankruptcy trustees say Medical Capital operated as nothing more than a Ponzi scheme.

The private-placement game is changing, thanks in large part to ongoing legal cases over failed private placements – also known as Reg D offerings – in Provident Royalties and Medical Capital Holdings. Both companies were charged with fraud by the Securities and Exchange Commission (SEC) in 2009.

Major private-placement players like Securities America are feeling the ramifications of the issues involving Medical Capital and Provident Royalties – including a rash of lawsuits and arbitration claims filed by investors, as well as fraud charges issued by state securities regulators.

For some broker/dealers, the legal troubles stemming to Provident and Medical Capital, as well as to other failed private-placement offerings, have proven too much. Unable to sustain sufficient capital to fight their legal battles, many have gone out of business. Among the broker/dealers that have shuttered: Cullum & Burks Securities Inc., Securities Network, GunnAllen Financial, QA3 Financial Corp. and Jesup & Lamont Securities Corp., among others.

For the broker/dealers that do remain in the private-placement game, it’s likely they will see stricter oversight of the investments they market and sell to investors in the future. Just this week, the head of the Financial Industry Regulatory Authority (FINRA) publicly called upon broker/dealers that sell private placements to engage in a more vigorous due diligence process, “pushing and pulling” for information about the products.

“We want to recognize where there’s limited disclosure and appears to be a speculative investment, you need to push to try to get more information,” said Richard Ketchum, chairman and chief executive of FINRA, at the regulator’s annual meeting in Washington

“It’s not good enough to go to a canned information session. You need to push and pull,” he said of the due diligence process for broker/dealers touting risking private-placement deals.

Following a lengthy legal battle with various state regulators over failed private placements issued by Medical Capital Holdings, broker/dealer Securities America has agreed to make whole 63 Massachusetts clients who bought $5 million worth of the investments.

According to Massachusetts Secretary of State William Galvin, Securities America will pay $2.8 million to clients within 10 days.

The settlement, however, is contingent on several factors. As reported May 24 by Investment News, Securities America could be liable for up to another $2.2 million if a class action settlement currently being heard before a federal judge in Dallas falls through.

In addition, Securities America may have to pay more if the receiver for Medical Capital fails to pay 10% back to investors.

In the end, Massachusetts investors will recover 100% of the $5 million in principal they lost in Medical Capital. In July 2009, the Securities and Exchange Commission (SEC) charged the company with fraud.

Dozens of independent broker/dealers – the largest of which was Securities America -sold private placements in Medical Capital. From 2003 to 2008, Securities America sold about $700 million of the notes to investors. About half was lost in the alleged fraud.

In 2010, the Massachusetts Securities Division charged Securities America with fraud and accused the company of failing to disclose to investors that the Medical Capital notes it was selling were high-risk investments.

Massachusetts regulators also charged Securities America of using sales tactics that ignored warnings of their own analysts. In addition, the regulator claimed that the broker/dealer touted the Med Cap notes to unsophisticated investors.

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%.