Category Archives: Securities America

Securities America has fired off an angry letter to the Massachusetts Securities Division over its lawsuit against the broker/dealer for allegedly misleading investors who bought high-risk private placements in Medical Capital Holdings. The story was first reported Feb. 17 by Investments News.

According to the article, Securities America is outraged by the charges and contends Massachusetts regulators don’t understand the workings of private placements and Regulation D offerings.

The complaint that Securities America is referencing accuses the broker/dealer of misleading investors who bought nearly $700 million of private placements issued by Medical Capital from 400 Securities America representatives. The Massachusetts lawsuit also alleges that between 2003 and 2008, a group of Securities America executives repeatedly failed to heed the warning of an outside due-diligence analyst regarding the risks of the Medical Capital investments.

In July 2009, the Securities and Exchange Commission (SEC) charged Medical Capital with securities fraud. A number of lawsuits and arbitration claims have since been filed by investors who allege that various securities firms, including Securities America, failed to disclose the risks associated with the investments. As for Medical Capital, it currently is in receivership.

Securities America has a growing public relations problem. Last month, the broker/dealer was charged by Massachusetts regulators for allegedly failing to reveal key information to investors about high-risk notes issued by Medical Capital Holdings. Now, some of Securities America’s top producers are being sued by investors who say they were ill-informed about the risks of the Medical Capital deals that some Securities America advisers touted.

As reported Feb. 7 by Investment News, William Glubiak was named in December in a $7.7 million complaint from about 24 households of investors who purchased investments in Medical Capital Holdings.

Another leading Securities America adviser facing litigation connected to Medical Capital sales is Paula Dorion-Gray. In November, Dorion-Gray was named in a $254,000 complaint that alleges she recommended alternative investments in Medical Capital and another private placement, Provident Royalties LLC.

As for Securities America, it maintains its innocence.

“The Medical Capital situation is highly unfortunate for investors, advisers and broker-dealers alike, all of whom were intentionally defrauded by the principals at Medical Capital,” Securities America spokeswoman Janine Wertheim said in the Investment News article.

“Securities America performed extensive, industry-standard due diligence of Medical Capital, and every person that purchased Medical Capital through SA was an accredited investor, according to their financial suitability documents, and attested to that as well as to their understanding of the risks . . . We plan to vigorously defend our firm and our advisers that sold Medical Capital,” she said.

Investments in Medical Capital Holdings have resulted in millions of dollars in losses for investors across the country and, in turn, ignited a rash of lawsuits and arbitration claims. The focus of investors’ complaints is on the broker/dealers that sold the investments – known as Medical Capital Notes – and the information they allegedly kept hidden.

Securities America is one of the broker/dealers facing legal action in connection to Medical Capital Holdings. Massachusetts regulators sued the Omaha-based company on Jan. 26, claiming it misled investors about the risks involved in the Medical Capital Notes and the financial health of the issuer, Medical Capital Holdings. According to the complaint, 400 Securities America advisers allegedly sold $700 million of the private placements, half of which are now in default.

One of the advisers is William Glubiak, who was named in a December 2009 complaint involving Medical Capital Holdings. The suit alleges causes of action as unsuitability, misrepresentation and omission of material facts, according to records with the Financial Industry Regulatory Authority.

Paula Dorion-Gray is another adviser for Securities America. She also is facing a lawsuit over private placement deals gone wrong. As reported Feb. 3 by Investment News, Dorion-Gray was named in a $254,000 complaint in November that accuses her of recommending alternative investments in Medical Capital and another private placement, Provident Royalties LLC.

Medical Capital Holdings and Provident Royalties were both charged with fraud this past summer by the Securities and Exchange Commission (SEC).

If you have a story to tell involving Medical Capital Holdings, Securities America and/or Provident Royalties, please contact a member of our securities fraud team.

David McFadden, a former broker for Securities America, has been sentenced to five years in prison for running a securities fraud scheme that cost at least 150 clients – many of whom were retired or living on a fixed income – tens of millions of dollars in losses.

McFadden headed a company called Diversified Financial Services and was a registered representative for Securities America. And while he touted himself as a certified public accountant, he neglected to tell clients that he hadn’t been a licensed CPA for more than two decades.

Most of McFadden’s victims were solicited via seminars that he held for longtime Exxon-Mobil employees. According to court documents, McFadden convinced investors to make early withdrawals from their retirement accounts and then deposit the money into stock accounts and/or risky securities. McFadden, meanwhile, would make commissions on the purchases, even though he knew such investments were unsuitable for those approaching retirement.

McFadden pled guilty on May 27, 2009, admitting that he conspired with others to commit a securities fraud scheme by falsely promoting his qualifications and credentials as a CPA and financial planner to obtain clients.

“He lied to them and told them they were going to have their nest eggs for the rest of their lives,” said Assistant U.S. Attorney Dorothy Manning Taylor.

If you have a story to tell involving Securities America and/or David McFadden, please contact our lawyers. After reviewing your situation, they will advise you of your options.

A complaint against Securities America contains a lengthy and potentially damaging list of allegations against the Omaha broker-dealer and its sales of private offerings in Medical Capital Holdings. The complaint, which was filed Jan. 26 by Massachusetts Secretary of State William Galvin, accuses Securities America of not only misleading investors but also intentionally making material misrepresentations and omissions in order to get them to purchase investments in Medical Capital Notes.

Medical Capital was sued by the Securities and Exchange Commission (SEC) in July 2009 and placed into receivership one month later. Since then, its collapse has resulted in about $1 billion in losses for investors throughout the country.

Massachusetts’ securities division launched an investigation into Securities America in December 2009, after receiving complaints from investors who had placed their life savings into Medical Capital based on recommendations by Securities America. According to the complaint, many of these investors were unaware of the risks involved in the offerings. Securities America, on the other hand, was fully aware of these risks, the complaint says.

“Year after year, the due diligence analyst hired retained by Securities America to conduct a review of the various Medical Capital offerings specifically requested – and at many times pleaded – that investors be informed of certain heightened risks,” the complaint reads.

Many investors who purchased Medical Capital Notes had no idea as to how the notes were actually structured. In reality, the offerings were highly complex, speculative securities and considered suitable only for the most sophisticated of investors. In addition, many investors believed they were buying “fully secured” investments when they purchased Medical Capital Notes. As it turns out, that was not the case.

Other information that Securities America allegedly kept from investors included Medical Capital’s lack of audited financials. It was a concern that even Securities America’s own president, Jim Nagengast, felt. In a 2005 email, Nagengast wrote the following:

“My big concern is the audited financials. At this point, there is no excuse for not having audited financials . . . it is a cost they simply have to bear to offer product through our channel. We simply have to tell them if they don’t have financials by XXXX date, we will stop distributing the product on that date. Then they can decide if it’s worth to spend $50,000 to have it done. If they won’t spend the money, that should give us concerns.”

Concerns aside, Securities America ignored its president’s recommendation and continued selling millions of dollars worth of Medical Capital Notes. They did this knowing full well that no audited financials had ever been conducted on any of the Medical Capital entities issuing the notes

If you have a story to tell involving Securities America and/or Medical Capital Notes, please contact a member of our securities fraud team.

In an ironic twist, just two days after the state of Massachusetts filed charges against Securities America for allegedly misleading investors about sales of Medical Capital notes, the Omaha-based broker/dealer issued a press release announcing new members for its 2010 Advisory Council. The irony is the council itself. According to the release, its purpose is to provide an “opportunity for advisors to give feedback on the strategy, tactics and marketing message of Securities America.”

Considering the recent allegations against Securities America, those messages might need some serious review indeed.

Massachusetts Secretary of State William Galvin sued Securities America on Jan. 26, accusing the company of committing securities fraud on a “massive scale.” In the complaint, Galvin alleges that Securities America committed “acts of material omissions and misleading statements” when it sold nearly $700 million of promissory notes to Medical Capital investors.

According to the complaint, Securities America kept investors in the dark about various risks and other information concerning MedCap notes. “These risks were known to [Securities America]. Year after year, the due diligence analyst, retained by [Securities America] to conduct a review of the various Medical Capital offerings specifically requested, and at many times pleaded, that investors be informed of certain heightened risks,” the complaint reads.

Those risks included Medical Capital’s lack of audited financials.

The Massachusetts investigation also uncovered evidence that top executives at Securities America enjoyed vacation trips to Pebble Beach and Las Vegas resorts courtesy of Medical Capital.

From 2003 through 2009, Medical Capital issued more than $1.7 billion in notes; Securities America placed $697 million of that amount. In return, Securities America took in more than $26 million in compensation, according to the complaint.

Securities America has denied all charges levied by Massachusetts regulators.

Medical Capital currently is in receivership. It was sued by the Securities and Exchange Commission (SEC) in July 2009 for allegedly defraudeding investors out of at least $18.5 million. On Aug. 3, 2009, the SEC obtained an emergency court order halting a $77 million offering fraud perpetrated by the company.

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.

The state of Massachusetts apparently thinks so. Secretary of State William Galvin filed charges against Securities America on Jan. 26, accusing the broker/dealer of keeping investors in the dark about the risks of nearly $700 million in private placement securities issued by Medical Capital Holdings. 

Medical Capital, which raises money from investors and then provides loans to hospitals and other healthcare-related entities, is the same company that the Securities and Exchange Commission (SEC) sued in July for allegedly defrauding investors. In its complaint, the SEC says Medical Capital misappropriated $18.5 million of investors’ money, as well misrepresented its own business record by keeping several defaults under wraps.

As it turns out, Securities America was a big seller of Medical Capital notes. According the Massachusetts complaint, Medical Capital issued more than $1.7 billion in notes from 2003 through 2009. Securities America placed $697 million of that amount. In return, Securities America pocketed more than $26 million in compensation.

“People invested their life savings, while this dealer hid from them the truth of what they were getting into,” said Galvin in a statement.

Securities America denies the charges.

Coincidentally, the Massachusetts complaint was filed four days after Steve McWhorter, Securities America’s CEO, announced his retirement from the company. 

In October 2009, Securities America was sued by Ilene Grossbard of Sarasota, Florida, over allegations that the broker/dealer failed to warn her and other investors about what she says was a multibillion-dollar Ponzi scheme involving Medical Capital notes. The parent company of Securities America, Ameriprise Financial, was named in that lawsuit, as well.

If you suffered investment losses from Medical Capital notes sold by Securities America, please contact us. A member of our securities fraud team will evaluate your situation to determine if you have a viable claim for recovery.

Things are heating up for Securities America, which finds itself at the center of a regulatory probe involving sales of private placement securities. On Jan. 26, Massachusetts’ top securities regulator, William Galvin, filed the first state enforcement case against Securities America, accusing the Omaha-based broker/dealer of failing to tell investors about all of the risks associated with promissory notes issued by Medical Capital Holdings.

The Securities and Exchange Commission (SEC) sued Medical Capital for fraud in July 2009. A court-appointed receiver subsequently revealed that most of the account receivables on MedCap’s books did not exist. 

According to a statement issued by Galvin’s office, Securities America marketed Medical Capital notes for several years through seminars and other marketing tactics. The company continued to sell the notes to investors even after a senior-level company officer expressed concerns about Medical Capital and its fiscal health. 

As reported Jan. 26 by Investment News, Securities America’s due-diligence team discovered numerous red flags about Medical Capital Holdings between 2005 to 2007. Among those issues: The company invested up to $50 million in equity securities of all types, as well as made mortgage loans to entities within the health care industry but “outside of Medical Capital’s core expertise.” 

Securities America was one of the biggest sellers of MedCap notes. From 2003 through 2009, it sold nearly $700 million in Medical Capital investments. That comes to 37% percent of the $1.7 billion in notes that MedCap issued. 

In turn for its sales prowess, the administrative complaint alleges that Medical Capital treated Securities America’s top executives to all-expense paid trips to Las Vegas and Pebble Beach.

If you have a story to tell involving Securities America and/or Medical Capital Notes, contact a member of our securities fraud team.

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.

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.