Category Archives: SEC Investigation

Securities America, a broker/dealer division of Ameriprise Financial, is facing charges by Massachusetts Secretary of State William Galvin for allegedly making omissions and misleading statements in connection to sales of some $700 million in promissory notes. 

“Our investigation showed that Securities America ignored their own due diligence analysts and sold these notes to unsophisticated investors without telling them the risks involved,” Galvin said in a statement. “People invested their life savings, while this dealer hid from them the truth of what they were getting into.” 

The notes in question were issued by special-purpose corporations owned by Tustin-based Medical Capital Holdings, which was charged this past summer by the Securities and Exchange Commission (SEC) in a $77 million offering fraud. 

Private placement securities are supposed to be for “accredited” investors, but unsophisticated investors placed their life savings into Medical Capital notes based on recommendations from Securities America that the investments were suitable, according to the Massachusetts complaint. More than 400 registered reps of Securities America sold the notes using private placement memorandums, marketing flyers and pamphlets, the complaint states. The notes were characterized as “secured” in material from Medical Capital and Securities America, the division says. 

From 2003 through 2009, Medical Capital issued more than $1.7 billion in notes, and Securities America placed $697 million. For that work, Securities America received more than $26 million in compensation. 

Since August 2008, Medical Capital has defaulted on all of its outstanding notes and currently is in permanent receivership. As a result, millions of dollars of investors’ life savings remain frozen and illiquid.

If you have suffered investment losses connected to sales of private placements by Securities America and wish to discuss filing an individual arbitration claim with the Financial Industry Regulatory Authority (FINRA), please contact us. A member of our securities fraud will evaluate your situation to determine if you have a viable claim for recovery.

An increase in fraudulent private placement offerings has state regulators pushing for tougher regulatory reforms that will give them more control and oversight of private placement issuers. In particular, states securities regulators want authority to control those issuers that have prior convictions for securities fraud or other offenses. Case in point: Medical Capital Holdings.

The Securities and Exchange Commission (SEC) filed fraud charges against Medical Capital in July for private placement sales totaling $77 million. In the complaint, the SEC accuses Medical Capital and its principals of defrauding investors and misappropriating about $18.5 million of investor funds. The regulator also alleges that Medical Capital misrepresented the private placements by failing to inform investors that it had defaulted on loans connected to prior offerings, as well as was late in making payments to investors on principal and/or interest.

Following the SEC’s charges, it’s been determined that a number of broker/dealers knowingly marketed and sold unregistered Medical Capital notes to thousands of unsuspecting investors.

As reported Dec. 1 by Investment News, examples of private placement deals like those involving Medical Capital are one reason state regulators are calling for more authority over private-offering issuers with prior convictions for securities fraud. As it currently stands, private placements are generally exempt from review, which means state have no power to shut down issuers with past problems from selling private placements in the future.

“Before the North American Securities Administrators Association (NSMIA), if John Brown wanted to do a private placement but he had been convicted of securities fraud, he couldn’t use the exemption,” said Texas Securities Commissioner Denise Crawford, who is president of NASAA. “After NSMIA, the same John Brown could use the exemption” to sell private placements without registering,” the Investment News article said.

On Jan. 14, 2010, state regulators from across the country appeared on Capitol Hill to voice their concerns over private placements to the Financial Crisis Inquiry Commission. The Commission, which was created in May 2009 by President Obama, has been charged with dissecting the root causes of the nation’s financial meltdown. The consensus among state regulators who provided testimony thus far: Give states back the authority to police private-placement offerings or be prepared to see more private placement frauds down the road.

IIf you were ill-advised about the risks of investing in private placement offerings, contact our securities fraud team. We will evaluate your situation and explain your options.

The phrase “Medical Capital lawsuit” has become increasingly popular among investors following recent fraud charges filed against the Tustin-based healthcare company by the Securities and Exchange Commission (SEC).

In its complaint, the SEC accuses Medical Capital Holdings, Medical Capital Corporation, Medical Provider Funding Corporation VI and company officers Sidney M. Field, and Joseph J. Lampariello of securities fraud and misappropriating about $18.5 million of investors’ funds.

The SEC goes on to state that Medical Capital and related subsidiaries lied to backers as the companies allegedly raised and misappropriated millions of dollars of investors’ money while at the same time failing to disclose information about $1.2 billion in outstanding notes and $993 million in notes that had entered into default.

On the same day that the SEC filed fraud charges, the Financial Industry Regulatory Authority (FINRA) issued a sweep notice to an undisclosed number of brokerage firms to obtain information about sales of the Medical Capital Notes.

Investors who bought Medical Capital Notes based on the recommendation of a broker/dealer or investment firm may be able to recover their financial losses by filing an individual arbitration claim with FINRA. If you sustained investment losses in Medical Capital Holdings, contact our securities fraud team. We can evaluate your situation to determine if you have a viable claim.

Synthetic collateralized debt obligations, or CDOs, are complex mortgage-linked debt products that have been blamed for bringing Wall Street to its knees and pummeling millions of investors in the process. It was in the fall of 2007, when the financial markets first started to become unhinged, that these high-risk instruments found their way into the public’s eye.

Today, CDOs are a hot topic on Capitol Hill, where members of Congress and regulators like the Securities and Exchange Commission (SEC) are trying to determine exactly how and why synthetic CDOs created the financial tsunami that they did.

As reported Dec. 24 in an article by Gretchen Morgenson and Louise Story for the New York Times, regulators are said to be looking at whether current securities laws or rules of fair dealing were violated by the investment firms and banks that created and sold CDOs and then turned around to bet against clients who purchased them.

“One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded,” the article says.

Pension funds and insurance companies are some of the institutional investors that lost billions of dollars on synthetic CDOs – investments they thought were safe investments.

The New York Times article devotes space mainly to the synthetic collateralized debt obligation business of Goldman Sachs and, specifically, mortgage-related securities called Abacus synthetic CDOs. Abacus CDOs were developed by Goldman trader Jonathan Egol, who had the idea that they would protect Goldman from investment losses if the housing market ever collapsed.

According to the article, when the market did tank, Goldman created even more of these securities, enabling it to pocket huge profits. Meanwhile, clients of Goldman who purchased the CDOs – and who thought they were solid investments – lost big.

One can easily infer from the article and other news reports on the subject that Goldman put the best interests of clients in harm’s way with Abacus because it not only served as the structurer of the deals involving the product, but also held onto the short side of those same deals. In other words, the company would be advising clients to buy assets that, in turn, it was betting to fail.

Goldman certainly is not the only investment firm that employed this strategy. Others banks created similar securities that they sold to clients and then bet against the future performance of those assets.

Goldman and other investment banks will soon have to answer tough questions about accountability and fiduciary duty. In the meetings being held on Capitol Hill, the Financial Crisis Inquiry Commission – a group that has been compared to the 9/11 Commission – plans to call several panels of investment banks to appear as witnesses. Among them: CEOs of Goldman Sachs, Morgan Stanley, JP Morgan Chase, and Bank of America.

The number of investors who suffered losses in private securities issued by Medical Provider Funding Corporation and Medical Capital Holdings is growing daily. In July, the Securities and Exchange Commission (SEC) filed fraud charges against Medical Capital in connection to the sale of $77 million of these investments. A short time later, a class lawsuit was filed in the U.S. District Court for the Central District of California against various brokerage firms that sold the securities (called Medical Capital Notes). Among the firms cited as defendants: Cullum & Burks Securities, Securities America, Ameriprise Financial, and CapWest Securities.

According to the complaint, the private placement memoranda issued for the Medical Capital Notes misrepresented and omitted material facts regarding the terms of the offerings, the use of investors’ funds, the track record of various Medical Capital entities, the backgrounds and qualifications of the executives responsible for running the companies, and the overall risks of an investment in the Medical Capital Notes. 

In addition, the complaint alleges that the notes should have been registered with the SEC, but in fact were not. 

Maddox Hargett & Caruso currently is building cases for investors who lost money in Medical Capital Holdings. To begin your Medical Capital Fraud Recovery, complete this form.

The Securities and Exchange Commission (SEC) has charged Harold. H. Jaschke, a former broker with First Allied Securities, with fraud for allegedly churning accounts held by the city of Kissimmee, Florida, and the Tohopekaliga Water Authority and lying to both government bodies about his trading practices.

Churning is a fraudulent practice that occurs when a broker engages in excessive trading as a way to generate commissions and other revenue without regard for a customer’s investment objectives.

The complaint against Jaschke was filed in federal court in Orlando on Dec. 29. According to the documents, Jaschke was associated with First Allied Securities when the alleged violations occurred.

The SEC alleges that Jaschke employed a high-risk, short-term trading strategy involving zero-coupon U.S. Treasury bonds. According to the complaint, the broker sometimes bought and sold the same bond within a matter of days, and occasionally on the same day.  The practices exposed the municipalities to millions of dollars in losses while yielding more than $14 million in commissions for Jaschke, according to the SEC.

The SEC also alleges that Jaschke knew the municipalities’ ordinances prohibited his trading strategy and required that their funds be invested with “the paramount consideration to be safety of capital.”

San Diego-based First Allied Securities fired Jaschke late last year. Jaschke then started his own firm, HHJ Capital Partners G.P. LLC.

In a related enforcement action, the SEC charged Jeffrey C. Young, the former vice president of supervision for First Allied Securities, of failing to reasonably supervise Jaschke during his employment with the firm. Without admitting or denying the findings, Young settled the case and paid a $25,000 penalty. Young also is barred from acting in a supervisory capacity for a period of nine months.

Private placement claims are on the upswing, prompting new questions on whether these largely unregulated securities are appropriate investments for many individual investors. A number of the claims filed in recent months target smaller broker/dealers that investors say sold them fraudulent private placements. Case in point: Private placements in Medical Capital Holdings.

In July, the Securities and Exchange Commission (SEC) filed civil fraud charges against Medical Capital, alleging that the Tustin, California-based financial services company committed fraud as far back as 2003.

The SEC accuses Medical Capital Holdings of lying to backers as it raised and misappropriated millions of dollars of investors’ money while keeping mum to buyers about the more than $1.2 billion in outstanding notes and the $993 million in notes that had entered into default or resulted in late payments of both principal and interest to investors.

As reported Dec. 10 by the Wall Street Journal, the Medical Capital case has produced a slew of investor claims against smaller brokerages that sold Medical Capital private placements, including Securities America, Capital Financial Services and QA3 Financial Corp.

Investments in private placements carry a considerable amount of risk. To begin, securities sold through private placements are not publicly traded and, therefore, provide less liquidity to investors. Despite these concerns, the SEC has actually lowered the income and asset thresholds required to purchase private placements. In addition, issuers are allowed to sell a percentage of their private placements to individuals who don’t meet suitability standards.

Provident Royalties Joseph S. Blimline faces a temporary restraining order and emergency asset freeze by the Securities and Exchange Commission (SEC) for his alleged role in a $485 million fraud and Ponzi scheme involving oil and gas placements. The SEC obtained the order on Dec. 3.

Previously, on July 7, the SEC had filed a complaint against three other co-owners of Provident Royalties: Paul R. Melbye, Brendan W. Coughlin and Henry D. Harrison. In that complaint, the SEC obtained a temporary restraining order and asset freeze, as well as appointed a receiver of the defendants’ assets.

The SEC alleges in its amended complaint that Provident advanced approximately $93 million of investor funds to Blimline and various entities he controlled. The funds were for the purported purchase of oil and gas interests, or loans, to which Provident often never received title or repayment.

In addition, the amended complaint alleges that in presentations to investors and representatives of broker/dealers that marketed Provident securities, Blimline failed to disclose his receipt of such funds, his involvement in the management of Provident and a prior sanction imposed against him by securities authorities in Michigan for prior conduct.

If you’ve experienced substantial investment losses in Provident Royalties, please contact us. We want to hear your story and advise you on your legal options.

Federal regulators are suing Charles C. Slowey, Jr. and the companies he controls – Endeavor Partners, LLC and Endeavor Capital Management Group, LLC – along with Advanced Planning Securities (APS), Oldham Harris and brokers Edward Puttick, Gregory Oldham and Glenn Harris for allegedly swindling retirees and senior citizens out of nearly $12 million. The Securities and Exchange Commission’s complaint, filed Oct. 22, alleges that the individuals gained investors’ trust via free lunch seminars and then convinced them to invest in four questionable real estate securities known as the Endeavor Funds.

According to the SEC’s complaint, investors have lost most of the money they invested in the funds as a result of “false statements and omissions made by Slowey, misappropriation of investor funds by Slowey, large fees and commissions paid to Slowey, Advanced Planning Securities, Oldham Harris, and the failure of the highly risky investments made by the Endeavor Funds.”

The SEC also alleges that Advanced Planning Securities failed to conduct sufficient due diligence into the private placement securities its agents were selling and looked the other way regarding numerous red flags concerning Slowey and the Endeavor funds.

Information in the SEC’s complaint alleges that investors were promised a return of more than 50% on the sale of some properties in which they were investing. In addition, the SEC accuses Slowey of misappropriating more than $1 million of investor funds by charging excessive management fees and taking out an interest-free personal loan to purchase his own home.

Many of the investors to whom the investments were sold had limited financial means, according to the SEC, and few had previously invested in private placement securities or securities based on distressed or subprime mortgages.

When the funds began to experience obvious financial problems, the SEC alleges that Slowey continued to make false statements to investors. For example, the SEC says he specifically told one senior investor in Florida that his investment was safe, when in fact the funds had little money left at that time. Slowey told another senior investor that the funds would recover by the following year, even though he had no basis for making the prediction.

On other occasions, the SEC says Slowey asked investors to reinvest their maturing interest in the Endeavor Funds even though he knew that the funds had lost substantial sums of money and owned only a handful of properties that were worth far less than the $10 million initially deposited by investors.

The SEC’s complaint can be viewed here.

Our lawyers are actively advising individual and institutional investors in evaluating their legal options when confronted Endeavor investments. Leave a message below or via the Contact Us form. We want to counsel you on your legal options.

Ralph Cioffi and Matthew Tannin, the two former Bear Stearns executives who are on trial for allegedly lying to investors about the fiscal health of two hedge funds, will soon find out their fates. On Nov. 9, the month-long trial comes to a close, and a jury will begin deliberations on the charges of securities fraud, wire fraud, conspiracy and insider trading brought by the Office of the United States Attorney for the Eastern District of New York against the two men.

The charges against Cioffi and Tannin are tied to the management – and eventual implosion – of two Bear Stearns hedge funds known as the Bear Stearns High Grade Structured Credit Strategies Fund and the Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage Fund.  Prosecutors contend Cioffi and Tannin told “black and white lies” to investors about the financial state of the two funds despite the fact they were seeing some of the worst market conditions on record.

Over the course of the past few days, prosecutors and defense counsel have presented their closing statements to the jury – and the differences in their approach are notable.

Assistant United States Attorney Ilene Jaroslaw provided the jury with a methodical chapter and verse of the mountain of lies and web of deception that resulted in more than $1.5 billion of investors’ capital being wiped out.  Meanwhile, counsel for Cioffi and Tannin responded in a way that can best be summarized as the “you should believe us and trust our interpretation of the facts because we’re Wall Street” defense.

Whether such a defense will resonate with members of the jury remains to be seen – as does the obvious question as to why Cioffi and Tannin chose not to testify in their own defense if, in fact, they had a plausible explanation for the explosive emails that are at the core of the government’s case.

We may never know that answer. But if we’ve learned one thing from the recent crisis on Wall Street, it’s this: When Wall Street tells us – either directly or through its hired guns – that we can and should trust it about anything, it’s a sure sign we need to button the pockets on the back of our pants and secure our wallets.  And fast.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.