FINRA Sanctions More B-Ds That Sold Private Placements in Medical Capital, Provident Royalties

Soured deals involving private placements in Medical Capital Holdings, Provident Royalties and DBSI, Inc., have come back to haunt more broker/dealers that sold the investments to unsuspecting clients. The Financial Industry Regulatory Authority (FINRA) announced today sanctions against eight firms and 10 individuals, ordering restitution of more than $3.2 million for selling investments that were unsuitable for their clients.

In April, FINRA sanctioned two firms and seven individuals for selling interests in private placements without conducting a reasonable investigation.

In the latest sanction, FINRA found that the broker/dealers did not have adequate supervisory systems in place to identify and understand inherent risks of the offerings in question. As a result, many of the firms failed to conduct adequate due diligence of the products. In addition, some of the firms did not have reasonable grounds to believe that the private placements were suitable for any of their customers.

FINRA also said in a statemente that the sanctioned principals did not have reasonable grounds to allow the firms’ registered representatives to continue selling the offerings, despite the numerous “red flags” that existed about the private placement offerings.

Among the firms and individuals sanctioned by FINRA for either failing to conduct a reasonable investigation or for failing to enforce procedures regarding sales of private placements offered by Provident Royalties Medical Capital Holdings or DBSI:

• NEXT Financial Group, Inc. of Houston, Texas, was ordered to pay $2 million in restitution to affected customers and fined $50,000; Steven Lynn Nelson, Vice President for Investment Products and Services, was suspended in any principal capacity for six months and fined $10,000 in connection with the sale of three Provident Royalties private placements.

• Investors Capital Corporation of Lynnfield, Massachusetts, was ordered to pay roughly $400,000 in restitution to customers in connection with the sale of two Provident Royalties private placements and was also sanctioned in connection with an additional offering issued by CIP Leveraged Fund Advisors.

• Garden State Securities, Inc. of Red Bank, New Jersey, and Kevin John DeRosa, a co-owner of the firm, were ordered to pay $300,000 in restitution on a joint-and-several basis to affected customers in connection with the sale of a Medical Capital private placement. DeRosa also was suspended for 20 business days in any capacity and for an additional two months in any principal capacity, and fined $25,000. Vincent Michael Bruno, the firm’s Chief Compliance Officer at the time, was suspended for one month in a principal capacity and fined $10,000.

• Capital Financial Services of Minot, North Dakota, was ordered to pay $200,000 in restitution to affected customers, and Brian W. Boppre, a former principal, was suspended in any principal capacity for six months and fined $10,000 in connection with the sale of three Provident Royalties private placements and a Medical Capital private placement.

• National Securities Corporation of Seattle, Washington, was ordered to pay $175,000 in restitution to affected customers, and Matthew G. Portes, Director of Alternative Investments/Director of Syndications, was suspended in any principal capacity for six months and fined $10,000 in connection with the sale of three Provident Royalties private placements and a Medical Capital private placement.

• Equity Services of Montpelier, Vermont, was censured, fined $50,000 and ordered to pay nearly $164,000 in restitution in connection with the sale of a private placement DBSI, Inc. issued; Stephen Anthony Englese, Senior Vice President for Securities Operations, was suspended from association with any FINRA-regulated firm in any capacity for 30 business days and fined $10,000; and Anthony Paul Campagna, a registered representative, was suspended from association with any FINRA-regulated firm in any capacity for 30 business days and fined $25,000.

• Securities America, Inc. of La Vista, Nebraska, was censured and fined $250,000 in connection with the sale of two Provident Royalties private placements.

• Newbridge Securities Corporation of Fort Lauderdale, Florida, was fined $25,000; Robin Fran Bush, the former Chief Compliance Officer of Newbridge, was suspended in any principal capacity for six months and fined $15,000 in connection with the sale of four DBSI private placements and a Medical Capital private placement.

• Leroy H. Paris II, former President and Chief Executive Officer for the now-defunct Meadowbrook Securities, LLC (aka Investlinc Securities, LLC), of Jackson, Mississippi, was suspended for six months in any principal capacity and fined $10,000 in connection with the sale of two Provident Royalties private placements and a Medical Capital private placement.

• Michael D. Shaw, formerly associated with VSR Financial Services, Inc. of Baton Rouge, Louisiana was barred from the industry in connection with the sale of a private placement offered by DBSI and several additional private placements offered by other issuers. In addition, Shaw falsified customer account documents.