Category Archives: Securities America

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.

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.

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.

Apparently short on cash, broker/dealer Capital Financial Services is trying to combine 36 separate investor arbitration claims and lawsuits as part of a class action settlement. The claims are tied to private-placement sales totaling millions of dollars in Provident Royalties.

As reported Jan. 23 by Investment News, a federal judge recently issued an order stating that all arbitration claims and lawsuits against Capital Financial Services would be halted until he decided if they should all become part of a single class action lawsuit.

Combining the pending litigation, which involves sales by broker/dealers of Provident Royalties LLC private placements, could save them millions of dollars in damages and legal fees, according to the Investment News story.

Capital Financial is among several broker/dealers named in the class action, Billitteri v. Securities America Inc. Other defendants listed include National Securities, Next Financial Group and QA3 Financial Corp.

The lawsuit itself was filed in the summer of 2009, after the Securities and Exchange Commission (SEC) charged Provident Royalties with fraud and allegedly running a Ponzi scheme. According to the SEC’s complaint, Provident sold $485 million in securities and developed a wide network of independent broker/dealers to pitch the investments to investors.

Court documents show that Capital Financial is facing 36 separate legal cases from investors who bought almost $11.9 million in Provident Royalties private placements.

As it is, however, Capital Financial may have little money for legal fees and claims. According to court filings, its assets include $1.4 million of insurance and $120,000 in excess net capital, totaling $1.52 million. That means Capital Financial has about 12 cents per dollar available for clients who have sued the firm or plan to.

Arguments for and against combining the arbitrations and other lawsuits against Capital Financial are scheduled to be heard at a hearing in April.

If you’ve suffered financial losses of $100,000 or more in PRovident Royalties or Securities America and believe those losses are the result of inadequate information on the part of your broker/dealer, please Contact Us.

Private placement investments in Medical Capital Holdings and Provident Royalties have caused financial devastation for hundreds of investors after the deals later soured and the companies issuing the securities went belly up. Now, several independent broker/dealers that sold the products to investors are facing financial issues of their own.

As reported Jan. 17 by Investment News, QA3 Financial Corp. is one of those broker/dealers. The story says QA3 is looking at bankruptcy because of a dispute with its insurance carrier over the amount of coverage available for legal claims stemming from private placement sales in Medical Capital and Provident Royalties.

According to the article, QA3 claims it had coverage for $7.5 million of legal claims, damages and expenses, while its carrier, Catlin Specialty Insurance Co., said the coverage is capped at $1 million.

A lawsuit filed in September states that QA3, which includes about 400 independent representatives and advisers, is facing bankruptcy because of its issues with Catlin. Catlin later sued QA3, claiming that private-placement claims under the policy were, in fact, limited to $1 million. That suit is pending.

Like a number of broker/dealers that sold private placement in Medical Capital and Provident Royalties, QA3 is facing a slew of arbitration claims filed by clients who suffered huge financial losses in their investments when the companies were sued by the Securities and Exchange Commission for fraud. Today, both Medical Capital and Provident Royalties are in receivership.

In the case of Medical Capital, Securities America was a top seller of Med Cap private placements. QA3 was a leading seller of Provident deals. By some estimates, QA3 sold $32.6 million in Provident notes, reportedly collecting almost $7 million in commissions.

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.

Medical Capital Holdings. Securities America. Behringer Harvard REIT I. Main Street Natural Gas Bonds. Tim Durham. Fannie Mae, Freddie Mac Preferred Shares. Goldman Sachs CDO Fraud. Lehman Structured Notes. These names were among the hot topics that dominated the investment headlines in 2010.

In January, Securities America was accused by Massachusetts Secretary of State William Galvin of misleading investors and intentionally making material misrepresentations and omissions in order to get them to purchase private placements in Medical Capital Holdings. Medical Capital was sued by the Securities and Exchange Commission (SEC) in July 2009 and placed into receivership. Its collapse ultimately created about $1 billion in losses for investors throughout the country.

According to the Massachusetts complaint, as well as other state complaints that would follow, many investors were unaware of the risks involved in their Medical Capital private placements. They also didn’t know about the crumbling financial health of the company. Securities America, on the other hand, was fully aware of both, regulators allege.

In February, non-traded real estate investment trusts like the Behringer Harvard REIT I became front-page news, as investors filed complaints over what their brokers did and did not disclose about the investments. In the case of Behringer and other non-traded REITs, including Cornerstone, Inland Western and Inland American, investors found themselves blindsided after discovering their investments were high-risk, illiquid and contained highly specific and lengthy exit clauses.

In March, rogue brokers Bambi Holzer faced charges in connection to sales of private placements in Provident Royalties. Like Medical Capital Holdings, the SEC charged Provident with securities fraud, citing $485 million in private securities sales. In March 2010, the Financial Industry Regulatory Authority (FINRA) formally expelled Provident Asset Management LLC, the broker-dealer arm of Provident.

Ponzi schemes were big news, as well, in March. Heading the list of offenders was Rhonda Breard, a former broker for ING Financial Partners. State regulators contend Breard scammed nearly $8 million from investors in a Ponzi scheme that allegedly had been going on since at least 2007.

In April, Goldman Sachs and its role in the financial crisis faced new scrutiny by Congress. Internal emails became the driving force behind the interest. Eventually, charges were filed by the SEC over a synthetic collateralized loan obligation – Abacus 2007-ACI – that produced about $1 billion in investor losses. Goldman later reached a settlement with the SEC, paying a $550 million fine. The fine remains the biggest fine ever levied by the SEC on a U.S. financial institution. Goldman also acknowledged that its marketing materials for Abacus contained incomplete information.

In May, FINRA stepped up its own scrutiny of non-traded REITs. On its watch list: Behringer Harvard REIT I, Inland America Real Estate Trust, Inland Western Retail Real Estate Trust, Wells Real Estate Investment Trust II and Piedmont Office Realty Trust. In particular, FINRA began to probe the ways in which broker/dealers marketed and sold non-traded REITs to investors.

In June, 49 broker/dealers found themselves named in a lawsuit involving sales of Provident Royalties private placements. The lawsuit, filed June 21 by the trustee overseeing Provident – Milo H. Segner Jr. – charged the broker/dealers of failing to uphold their fiduciary obligations when selling a series of Provident Royalties LLC private placements. Among the leading sellers of private placements in Provident Royalties were Capital Financial Services, with $33.7 million in sales; Next Financial Group, with $33.5 million; and QA3 Financial Corp., with $32.6 million.

In July, Fannie Mae and Freddie Mac were back in the news, as a rash of investors began filing lawsuits and arbitration claims over preferred shares purchased in the companies. In 2007 and 2008, investment firms like UBS, Morgan Stanley, Citigroup, Merrill Lynch and others sold billions of dollars in various series of preferred stock issued by the two mortgage giants. According to investors, however, the brokerages never revealed key information about the preferred shares, including the rapidly deteriorating financial health of Freddie Mac and Fannie Mae and the fact that both companies had a growing appetite for risky lending, excessive leverage and investments in toxic derivatives.

In August, new issues regarding retained asset accounts (RAAs) came to light. Specifically, RAAs allow insurers to earn high returns – 4.8% – on the proceeds of a life insurance policy. Meanwhile, beneficiaries often receive peanuts via interest rates as low as 0.5%. Adding to the issues of RAAs is the fact that the products are not insured by the Federal Deposit Insurance Corp. (FDIC).

In September, new concerns about the suitability of leveraged, inverse exchange-traded funds (ETFs) for individual investors began to crop up. Among other things, regulators cautioned investors about the products and stated that they may be inappropriate for long-term investors because returns can potentially deviate from underlying indexes when held for longer than single trading day.

In October, the ugliness associated with some non-traded REITs gained new momentum. A number of non-traded REIT programs eliminated or severely limited their share repurchase programs. At the same time, some non-traded REITs continued to offer their shares to the public. As of the first quarter of 2010, this group included Behringer Harvard Multi-family REIT I, Grubb & Ellis Apartment REIT, Wells REIT II, and Wells Timberland REIT.

In November, sales of structured notes hit record highs of more than a $42 billion. Leading the pack in sales of structured notes was Morgan Stanley at $10.1 billion, followed by Bank of America Corp., which issued $7.9 billion.

Because of their complexity, structured products are not for those who don’t fully understand them. Moreover, once an investor puts money into a structured product, he or she is essentially locked in for the duration of the contract. And, contrary to promises of principal by some brokers, investors can still lose money – and a lot of it – in structured notes.

Case in point: Lehman Brothers Holdings. Investors who invested in principal-protected notes issued by Lehman Brothers lost almost all of their investment when Lehman filed for bankruptcy in September 2008.

Also big news in November 2010: Tim Durham and Fair Finance. The offices of Fair Finance were raided by federal agents of Nov. 24. On that same day, the U.S. Attorney’s Office in Indianapolis filed court papers alleging that Fair Finance operated as a Ponzi scheme, using money from new investors to pay off prior purchasers of the investment certificates. According to reports, investors were defrauded out of more than $200 million.

The effects of Lehman Brothers’ bankruptcy continued to unfold in December 2010 for many investors who had investments in Main Street Natural Gas Bonds. Main Street Natural Gas Bonds were marketed and sold by a number of Wall Street brokerages as safe, conservative municipal bonds. Instead, the bonds were complex derivative securities backed by Lehman Brothers. When Lehman filed for bankruptcy protection in September 2008, the trading values of the Main Street Bonds plummeted.

Many investors who purchased Main Street Natural Gas Bonds did so because they were looking for a safe, tax-free income-producing investment backed by a municipality. What they got, however, was a far different reality.

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.”