Category Archives: Medical Capital Holdings

Broker/dealer Securities America is finding itself entrenched in arbitration claims filed by disgruntled investors over soured private-placement deals involving the now-bankrupt Medical Capital Holdings.

As reported Jan. 9 by Investment News, the broker/dealer could face 150 or more arbitration claims over the next 12 to 18 months. The claims, filed with the Financial Industry Regulatory Authority (FINRA) involve $90 million in investor losses connected to Medical Cap Holdings.

Last month, Securities America’s legal woes began to mount in earnest when a FINRA arbitration panel awarded almost $1.2 million in damages and legal fees to an elderly client who had sued the broker/dealer and broker Randall Ray Talbott for misrepresentation over sales of Medical Capital private placements.

In July 2009, the Securities and Exchange Commission (SEC) filed fraud charges against Medical Capital in connection to sales of $77 million of private securities in the form of notes. In its complaint, the SEC accused the Tustin-based medical receivables firm of lying to backers as it allegedly raised and misappropriated millions of dollars of investors’ money while failing to disclose information about $1.2 billion in outstanding notes and $993 million in notes that had entered default.

In addition to arbitration claims from investors, Securities America faces legal issues from state securities regulators. Securities divisions in Massachusetts and Montana filed lawsuits again the broker/dealer last year over sales of Medical Capital private placements.

Over the years, many independent broker/dealers have pitched investments in Medical Capital notes to investors. Securities America, however, is by far the biggest seller of Med Cap private placements, with 400 brokers selling almost $700 million of the products.

Securities America has about 1,900 representatives and advisers. It is owned by Ameriprise Financial.

If you have a story to tell involving Securities America and/or investments in Medical Capital Holdings, please contact a member of the securities fraud team at Maddox, Hargett & Caruso.

Soured private-placement deals left dozens of broker/dealers in dire straits this past year, forcing many to close their doors entirely. As reported Jan. 2 by Investment News, the broker/dealer community has shrunk by 9% since 2005 to 4,619. Through November 2010, the number of broker/dealers registered with the Financial Industry Regulatory Authority (FINRA) was 101 below the total at the end of 2009.

The reasons behind the decline vary. Bad business practices over private placements tied to such firms as Medical Capital Holdings and Provident Royalties led several broker/dealers to bite the dust in 2010. Others closed down because of capital-requirement violations. And some went out of business due to soaring legal costs associated with investor lawsuits.

In March 2010, GunnAllen Financial, which at one time had 1,000 affiliated registered representatives, closed its doors because of net-capital violations. Several months later, Jesup & Lamont Securities Corp. followed suit.

Meanwhile, a slew of broker/dealers that allegedly sold private-placement offerings from the now-defunct firms of Medical Capital Holdings and Provident Royalties are the subject of class actions and arbitration complaints from investors. Okoboji Financial Services, a top seller of Provident Royalties’ private placements, closed its doors last May.

One month later, Dallas-based Cullum & Burks Securities, a leading seller of private placements in Medical Capital Holdings, also shut down its business.

More failures and business closings of independent broker/dealers are predicted in 2011.

“It’s been a horrible market and firms are thinly capitalized,” said Larry Papike, president of Cross-Search, a recruiting firm specializing in independent representatives and executives at such firms, in the Investment News article.

Fraud allegations and failed deals over private placements connected to issuers like Medical Capital Holdings have sullied the reputation of countless broker/dealers this year. Some have closed up shop entirely, while others, like Securities America, are the subject of arbitration claims and lawsuits by investors.

The Securities and Exchange Commission (SEC) now has plans to beef up regulatory oversight of broker/dealers in an attempt to hold them more accountable for their customers’ assets. As reported Dec. 6 by Investment News, the SEC’s efforts would bring in the Public Company Accounting Oversight Board to inspect auditors of all broker/dealers.

The accounting industry will play a crucial role in helping investors regain confidence in the wake of [Bernie] Madoff’s scheme and the 2008 financial crisis, said SEC Chairman Mary Schapiro in a Dec. 6 speech at an American Institute of Certified Public Accountants conference in Washington.

“We will consider increasing surveillance of brokerages in custody by providing information and tools for new examiners regulation,” Schapiro at the conference. “Our markets depend on confident investors – and our efforts will succeed only if those investors believe the numbers that you write on the bottom line.”

Private placements – from Medical Capital to Provident Royalties – have made a name for themselves this year, producing massive financial losses for unsuspecting investors. Unsuspecting because, in many instances, investors were unaware of the untold risks associated with these largely unregulated investments.

Take Tracy Nye, a 50-year-old Idaho restaurant owner who was forced to come out of retirement after losing $1.5 million on private placements in Medical Capital Holdings and in Shale Royalties, an affiliate of Provident Royalties LLC. Both entities were sued for fraud by the Securities and Exchange Commission (SEC) in the summer of 2009.

In total, investors lost more than $1 billion in private placements issued by Tustin, California-based Medical Capital and some $485 million from Dallas-based Provident Royalties, an oil and gas investment firm.

According to the SEC, both Medical Capital and Provident misrepresented their investments, as well as misappropriated investors’ money.

Meanwhile, investors like Nye are paying the price. Many have witnessed their life savings vanish overnight, while others say their money for retirement and children’s college education are now a thing of the past.

As reported in a Nov. 19 article by Bloomberg, private placements were initially marketed and sold to institutional investors and financially savvy individuals. However, because the SEC hasn’t changed the majority of its net-worth requirements for private placements since 1982, the products are being sold to investors even though many may not thoroughly understand what they’re actually getting into. In particular, retirees are a favored target of issuers of private placements because they have access to retirement accounts and equity in their homes.

According to the Financial Industry Regulatory Authority (FINRA), complaints about private placements have increased 35% in this year alone and more than 50% in 2009. Earlier this year, FINRA issued a notice to brokers regarding private placements; it also has launched an investigation into an undisclosed number of broker/dealers regarding sales practices of the products.

If you sustained financial losses related to Medical Capital, Provident Royalties or another private placement investment, contact our securities fraud team. We will evaluate your situation to determine if you have a claim.

Even though Securities America continues to wage legal battles stemming from sales of Medical Capital private placements, the company apparently is beefing up its network of independent representatives and advisers.

As reported Nov. 1 by Investment News, Securities America acquired a branch of about 45 representatives and managers in control of $500 million in client assets formerly affiliated with Equitas America LLC in September. One month earlier, Steve Bull, a former branch manager with 20 reps under him at Next Financial Group, joined Securities America.

Additional acquisitions and/or mergers could occur in the future, according to Securities America CEO Jim Nagengast, especially in light of the fact that more broker/dealers are closing up shop – either for capital funding issues or legal battles over private placement deals.

For more than a month, Securities America has been involved in an administrative hearing with the Massachusetts Securities Division over allegations that the firm misled Massachusetts investors who bought $7.2 million in Medical Capital Holdings notes from Securities America reps.

The administrative hearing comes on the heels of a Jan. 26 lawsuit in which Massachusetts Secretary of State William Galvin accuses Securities America of committing securities fraud on a “massive scale.” Among the charges, Massachusetts regulators allege that Securities America intentionally failed to reveal potential red flags to advisers and clients about Medical Capital.

In July 2009, the Securities and Exchange Commission (SEC) filed fraud charges against Medical Capital, which currently is in receivership.

Since then, investors have filed lawsuits and arbitration complaints over the high-risk private placements against more than 50 securities firms.

If you suffered investment losses in Medical Capital notes sold by Securities America, please contact us. A member of our securities fraud team will help you determine if there is a viable claim for recovery.

Embattled broker/dealer Securities America is crying foul as it faces Massachusetts securities regulators over claims of misleading investors who bought $7.2 million in Medical Capital private placements. The legal showdown began in earnest last week, when Securities America appeared at an administrative hearing to answer allegations brought in early 2010 that the broker/dealer failed to disclose potential red flags to both advisers and clients about Medical Capital.

Medical Capital is a Tustin, California, lender that issued private placements to purchase medical receivables. Securities America was one of Medical Capital’s biggest distributors, selling an estimated $700 million of the private placements from 2003 to 2008.

Meanwhile, investors reportedly lost more than $1 billion with their purchases of Medical Capital notes.

In July 2009, the Securities and Exchange Commission (SEC) charged Medical Capital and its two top executives with securities fraud. After raising $2.2 billion in capital, the firm is now in receivership. Regulators have since discovered that Medical Capital’s assets included not only medical receivables and loans but also a 118-foot yacht and a $20 million stake in the movie, “Perfect Game.”

As reported Oct. 4 by Investment News, the Securities America case is the first major legal battle involving an independent broker/dealer that sold private placements, or Regulation D offerings.

According to the lawsuit brought by Massachusetts regulators, Securities America deceived investors by allegedly representing MedCap notes as safe, secure and guaranteed, and never revealing the true nature of risk that the investments presented.

In addition, the lawsuit alleges that a due-diligence analyst at Securities America had serious concerns about Medical Capital, including the lack of audited financials for the series of private placement offerings. In 2005, Jim Nagengast, who was then Securities America’s president and current its chief executive officer, wrote in an e-mail that he, too, had issues about the lack of audited financials.

“Massachusetts investors were sold unsuitable, fraudulent notes by fraudulent means,” said Richard Khalife, an attorney for the Massachusetts Securities Division, in the Investment News article. “Unlawful conduct can’t go unpunished.”

Massachusetts isn’t the only regulator suing Securities America over sales of Medical Capital notes. In August, Montana regulators also sued Securities America, alleging that the firm and executives “withheld material information regarding heightened risks” from its representatives and their clients regarding notes issued by Medical Capital Holdings.

More than 40 other independent broker/dealers sold private placements in Medical Capital.

Maddox Hargett & Caruso P.C. continues to file arbitration claims with the Financial Industry Regulatory Authority (FINRA) on behalf of investors who suffered investment losses in Medical Capital. If you purchased Medical Capital Notes from a broker/dealer and wish to discuss your potential rights for recovery, contact us.

Securities America has once again caught the attention of securities regulators over risky sales in Medical Capital Holdings. This time, Montana’s State Securities Commission is suing Securities America.

In January, Massachusetts Secretary of State William Galvin filed the first lawsuit against Securities America, accusing the broker/dealer of failing to reveal key information about failed private placements in Medical Capital.

According to the Montana lawsuit, Securities America and several of its top executives, including new chief executive James Nagengast, allegedly “withheld material information regarding heightened risks” from its representatives and their clients regarding notes issued by Medical Capital Holdings.

Securities America brokers sold $698 million worth of the notes from 2003 to 2008 and “concealed these risks” from its brokers and their clients, the Montana lawsuit contends.

In total, Medical Capital sold $2.2 billion of notes through dozens of independent broker-dealers, a number of which have failed or shut down. Securities America is the broker/dealer that sold the largest amount of Medical Capital notes.

Securities America is facing a number of lawsuits and arbitration claims from disgruntled investors who lost hundreds of thousands of dollars in their Medical Capital investments.

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.

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.

Private-placement sales in Provident Royalties LLC have come back to haunt many once-successful broker/dealers. The Securities and Exchange Commission (SEC) charged Provident with civil fraud last summer, accusing the company and various top executives of operating a $485 million Ponzi scheme allegedly involving phony oil and gas securities.

Fifty broker/dealers that sold private placements in Provident are now being sued by Provident’s trustee, Milo H. Segner Jr. At the same time, hundreds of investors have filed arbitration claims with the Financial Industry Regulatory Authority (FINRA).

As reported July 11 by Investment News, many broker/dealers facing Provident-related lawsuits appear to have dangerously low net-capital positions – a fact that could put them in peril if they eventually pay out large legal claims over soured Provident deals.

“Broker-dealers facing millions of dollars in lawsuits could be in a world of hurt,” said Carrie Wisniewski, president of B/D Compliance Associates, in the Investment News article. “It’s a big problem,” she said.

One of the broker/dealers named in the trustee’s June 21 lawsuit is Capital Financial Services. It had only $390,000 in excess net capital at the end of 2009. The firm also has at least nine pending arbitration claims against its president, Brian Boppre, totaling $10.8 million in damages.

Next Financial Group also is a big seller of Provident private placements. It had $3.1 million in excess net capital at the end of last year, including $1.1 million reserved to pay contingent legal liabilities, according to Investment News.

Violation of the SEC’s net-capital requirement can signal the end of a broker/dealer. The Provident case – and the resulting legal claims it produced – has pushed many broker/dealers to the breaking point. Okoboji Financial Services, the fifth-largest seller of the Provident private placements, said in May it was closing up shop. Okoboji reportedly had excess net capital of $32,048 at the end of 2009, but made no provisions for legal liabilities.

GunnAllen Financial got caught up in a similar situation. A leading seller of investment deals in Provident Royalties, the broker/dealer closed in March when its available capital fell below the amount needed to adhere to industry rules. At least 10 other firms that sold private placements in Provident Royalties, as well as in Medical Capital Holdings, have shuttered recently because of net-capital issues.

If you are a retail or institutional investor and sustained investment losses related to Provident Royalties, contact our securities fraud team. We can evaluate your situation to determine if you have a claim.

At least 12 broker/dealers that sold private placements issued by Provident Royalties LLC are now either out of business or no longer sanctioned by the Financial Industry Regulatory Authority (FINRA). As reported June 30 by Investment News, the 12 firms in question sold $56.7 million of Provident offerings.

In July 2009, the Securities and Exchange Commission filed a lawsuit against Provident Royalties, charging the company and its founders with fraud. From 2006 to 2009, Provident sold $485 million of private placements through a number of broker/dealers throughout the country.

Those same broker/dealers are now facing a slew of arbitration claims and lawsuits from investors who lost millions of dollars on the Provident deals, as well as on other private-placement offerings, including those from Medical Capital Holdings.

Last month, the trustee in the Provident case, Milo H. Segner Jr., filed a complaint against 49 broker/dealers, alleging they “failed miserably in upholding their fiduciary obligations” when selling a series of Provident Royalties private placements. In total, the lawsuit lists 61 firms that sold investment offerings in Provident.

Investment News provided a list of broker/dealers with problems connected to sales of Provident private placements. Among the broker/dealers on the list:

• AFA Financial Group LLC – AFA sold $2.5 million of Provident private placements; in April, the broker/dealer said it was closing its business due to overwhelming legal and insurance costs.

• Barron Moore Inc. – The Financial Industry Regulatory Authority (FINRA) expelled Barron Moore in June 2008 over penny stock sales. The company sold $205,000 in Provident private placements.

• Community Bankers Securities LLC – Community Bankers ceased its affiliation with FINRA in December 2009. It sold $2.8 million in Provident private placements.

• Empire Financial Group Inc. – FINRA expelled Empire in March 2009 for failing to pay unknown fines and/or costs. Empire sold $2.8 million in Provident placements.

• Empire Securities Corp. – FINRA suspended Empire Securities in May 2010 for failing to pay arbitration fees. Empire Securities sold $205,000 in Provident private placements.

• ePlanning Securities Inc. – The company withdrew from FINRA in February 2009. It sold $3.8 million in Provident placements.

• GunnAllen Financial Inc. – GunnAllen was shut down in March 2010 when it failed to meet FINRA’s net-capital requirements. It sold $22.3 million in Provident private placements.

• Jesup & Lamont Securities Corp. – The broker/dealer closed its doors in June 2010 after failing to meet FINRA’s net-capital requirements. It sold $100,000 in Provident private placements.

• Main Street Securities LLC – The firm withdrew its registration from FINRA in November 2009. It sold $205,000 in Provident private placements to investors.

• Okoboji Financial Services – In May 2010, Okoboji filed forms with both FINRA and the SEC to withdraw its registration as a broker/dealer. Okoboji sold $21.9 million in Provident private placements.

• Private Asset Group Inc. – FINRA suspended Private Asset Group in May 2010 for failing to pay arbitration fees of $2 million.

• Provident Asset Management – On March 18, FINRA expelled Dallas-based Provident Asset Management for marketing a series of fraudulent private placements offered by its affiliate, Provident Royalties, in a massive Ponzi scheme. Provident Asset sold $50,000 in Provident private placements.