Articles Posted in Medical Capital

Thumbnail image for Thumbnail image for Thumbnail image for FINRA-1.gifSecurities America, Inc. has entered into a settlement with the Financial Industry Regulatory Authority (FINRA) and will pay a fine of $100,000 in connection with the sale of two private placements. As part of the settlement, Securities America agreed to the following findings:

  • The firm failed to have a supervisory systems in place designed to identify misrepresentations or misleading statements made to customers regarding two private placements: (1) the IMH Secured Loan Fund and (2) Medical Provider Funding Corporation (aka “Medical Capital”).
  • Securities America’s email monitoring system failed to identify several emails that misrepresented the liquidity and safety of the IMH Secured Loan Fund.

Investor hopes of recovering some of their Medical Capital securities fraud losses were dashed today when the court appointed receiver made the following announcement in his Fourteenth Status Report:

The film asset “The Perfect Game” was released in Mexico on April 2, 2010,

and on April 16, 2010 in the United States and Canada. Box office receipts have not met projections and the Receiver does not expect a return from the theatrical sales of the film. The Receiver has terminated the distribution agreement for cause, and has taken various actions to protect the receivership’s interest in the film.

Thumbnail image for Montana_Seal.pngOn August 4, 2010, the Montana Securities and Insurance Commissioner filed a disciplinary action against Securities America and several of the firm’s top executives alleging securities fraud in connection with the sale of the failed Medical Capital private placement. The Montana lawsuit seeks the imposition of fines and restitution on behalf of four different groups of investors identified in the lawsuit and also to provide appropriate restitution to all Montana participants. Montana’s disciplinary action is similar to the lawsuit filed by the Commonwealth of Massachusetts against Securities America back in January 2010.

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Thumbnail image for FBI Seal.pngAccording to an FBI report on Securities Fraud before the Senate Judiciary Committee, there was a 105% increase in High Yield Investment Program investigations by the Bureau in 2009. My California securities law firm has also experienced a similar surge in investor complaints involving high-yield investments like Medical Capital Notes, which were sold through a network of brokerage firms such as Securities America, a firm that is now the subject of numerous securities fraud lawsuits and class action lawsuits.

High Yield Investment Programs (“HYIP”) may seem like the ideal investment for retirees seeking greater income. However, for most investors, the acronym HYIP really stands for “Hazardous to Your Investment Portfolio.” Promising large returns with seemingly no risk, these high yielding investments have raised millions of dollars from unsuspecting investors. In reality, many of these to-good-to-be-true investments turned out to be nothing more than Ponzi Schemes that needed to bring in new investor money in order to continue paying existing investors. During the recent financial crisis, many of these Ponzi schemes ultimately fell apart when the pool of available investors evaporated.

High yield investments are often sold through private placements that can only be purchased by “accredited investors.” Because private placements are typically high risk investments with limited liquidity, they are only suitable for wealthy and sophisticated investors who can bear the risk of loss.

play at risk.JPGMy California securities law firm has been inundated with inquiries from small investors who were sold unregistered private placements even though they were clearly not wealthy or financially sophisticated. Some of these private offerings–such as those issued by Medical Capital Holdings and Provident Asset Management–turned out to be outright frauds.

The private placements that are causing the most trouble were widely sold by stockbrokers who were only allowed to target wealthy individuals that have the financial capability to bear the risk of investing in unregistered and illiquid securities. These qualified investors are referred to as “accredited investors” under the federal securities laws. As discussed in a previous blog posting about accredited investors, an individual will be considered “accredited” if they have a net worth of $1 million or an annual income in excess of $200,000 (or $300,000 when combined with a spouse). The financial threshold for “accredited investors” was established under “Regulation D” which was adopted back in 1982. These requirements have not been updated since they were implemented 28 years ago. According to an analysis conducted by Businessweek, if adjusted for inflation, the accredited investor net worth requirement would increase from $1 million to $2.25 million and the income requirement would increase to $449,000 (single) and $674,000 (married). It is estimated that there were approximately 1.5 million “accredited investors” back in 1982. By 2008, the estimated number of households that were “accredited” swelled to as much as 7.2 million.

With such a low barrier to entry, many small investors were allowed to unwittingly put their retirement savings at risk–often lured by assurances from their stockbroker of high returns, safety and liquidity. An increase in the accredited investor qualification requirements is necessary to curtail the sale of private placements to individuals who can least afford to lose their investment.

Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for medcap.jpgOn April 12, 2010, the Colorado Division of Securities revoked the securities license of stockbroker John B. Guyette for his role in the sale of Medical Capital Notes to a number of Colorado investors in violation of Rule 502 of Regulation D, which prohibits general solicitations or advertisements in connection with the sale of private placements. Under Regulation D, sales agents may only target potential investors with whom they have a substantial pre-existing relationship.

The types of general solicitations that are prohibited under Regulation D typically include: (1) newspaper advertisements; (2) radio or television broadcasts; and (3) seminars or meetings. Only when there is a substantive and pre-existing relationship, can a stockbroker target a particular investor to purchase a private placement. One of the purposes of the “preexisting relationship” requirement is to ensure that the selling agent is reasonably certain that the targeted investor is sufficiently sophisticated in financial matters to participate in the offering. According to the Securities and Exchange Commission (SEC), the mere fact that sales are directed only to accredited investors does not mean that the solicitation is in compliance. The Alcala Law Firm is pursuing securities arbitration claims on behalf of Medical Capital investors who were improperly targeted by stockbrokers through general solicitations. Many of these investors were financially unsophisticated and/or did not qualify as accredited investors.

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DOJseal.jpgThe Orange County Register reports that court records filed with the federal court in Orange County, California, reveal that Sidney Field and Joseph Lampariello, two former top Medical Capital Holdings executives, are currently under federal criminal investigation for their involvement in the troubled company whose private placement offerings were allegedly part of a massive Ponzi scheme. Former Medical Capital CEO Field and President Lampariello filed an emergency request with the court seeking permission to use $150,000 per month in frozen assets to defend themselves in parallel investigations by the SEC and the United States Department of Justice. Judge David O. Carter denied the request.

Click here for all Medical Capital blog postings.

mass-quarter.jpgThe Bay State has stepped up its investigation into the fraudulent sale of private placements by securities brokers. Today, the Massachusetts Securities Division announced that it issued 6 subpoenas to National Securities; QA3 Financial; CapWest Securities; Independent Financial Group; Investors Capital; and Centaurus Financial seeking information related to the sale of Medical Capital Holdings Inc. and Provident Royalties. Earlier this year, the Commonwealth of Massachusetts filed a securities fraud lawsuit against Securities America charging the firm with misleading investors in the sale of Medical Capital Notes. [See Massachusetts Regulators Charge Securities America With Securities Fraud]

Although the Commonwealth of Massachusetts is primarily concerned with the sale of Provident Royalties and Medical Capital Notes to residents of that state, the fraudulent sale of risky private placements has affected thousands of investors across the nation and is now the subject of intense scrutiny. Several of the brokers that were subpoenaed by Massachusetts have been subjected to an influx of customer arbitration claims and securities class action lawsuits. [See: Medical Capital Class Action or Arbitration: Investors Should Consider Their Options and related blog postings discussed therein.]

In my California-based securities law practice, most of my clients that own a home qualify as “accredited investors” within the meaning of Regulation D which exempts private placements from federal securities registration requirements. Rule 501 of the Securities Act of 1933 defines an accredited investor as any person with a net worth (or joint net worth with a spouse) in excess of $1,000,000 at the time of purchase.

danger sign.jpgFinancial advisors or stockbrokers who sell private placements are subject to the rules and standards promulgated by the Financial Industry Regulatory Authority (FINRA). According to FINRA, stockbrokers who act as selling agents for private placements are required to conduct a due diligence investigation of the offering so that they understand the nature of the investment and its risks. Also, before recommending a private placement to a particular customer, the stockbroker must perform a suitability analysis by examining the customer’s overall financial situation and investment objectives. Because a home can represent an investor’s largest asset, net worth alone should never be used to determine whether an investment is suitable. A customer’s status as an accredited investor does not release a stockbroker from the suitability requirements.

Recently, there has been a surge in investor complaints involving private placements that were sold by broker-dealers who were acting as selling agents. Private placements that are creating a lot of investor complaints include: Medical Capital, IMH Secured Loan Fund, Provident Asset Management, Striker Petroleum and DBSI. Some of the broker dealers who actively sold one or more of these private placements are Securities America, QA3 Financial, National Securities, CapWest, Independent Financial Group, just to name a few. Please contact us if you have any questions about unsuitable private placements.

Thumbnail image for Thumbnail image for medcap.jpgOn February 24, 2010, a federal judge granted a motion to dismiss filed by Sidney Field and David Lampariello in the securities fraud lawsuit filed by the Securities Exchange Commission (“SEC”), SEC v. Medical Capital Holdings, Inc., et al., before the U.S. District Court for the Central District of California. Field was the CEO of Medical Capital Corporation and Lampariello was the company’s COO. The motion to dismiss was granted with leave to amend. This means that the SEC has the opportunity to file an amended complaint in the next 14 days in order to clarify certain allegations regarding how the private placement memorandum and other offering documents were distributed to investors.

As noted in previous blog postings, Medical Capital Notes were sold to investors through a nationwide network of broker-dealers who acted as selling agents for the company. Many investors have filed securities arbitration claims against broker-dealers alleging fraud, misrepresentation and unsuitability. Brokerage firms that have been targeted by Medical Capital investors include Securities America, QA3 Financial, National Securities, CapWest and others. Click here for more Medical Capital blog postings.