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March 22, 2010

Massachusetts Securities Regulators Subpoena Six Brokers Over Sale of Medical Capital Holdings and Provident Royalties

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.]

March 3, 2010

Even for Accredited Investors, Stockbroker Recommendations to Buy Private Placements Are Subject to the Suitability Rule

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.

Related Blog Posts:

Investor Home Equity to be Excluded from $1 Million Minimum Net-Worth Requirement for Accredited Investors

It's Time to Change the Accredited Investor Rule for Private Placements

February 26, 2010

Provident Royalties Bankruptcy Update: Investors Should Look Before They Leap

Thumbnail image for Thumbnail image for provident.jpgOn February 26, 2010, the Chapter 11 trustee for the Provident Royalties LLC, et al. bankruptcy matter submitted a proposed plan that would, among other things, ask investors to assign any rights they may have against third parties such as stockbrokers who made unsuitable recommendations to invest in securities offered by Provident Royalties and Provident Asset Management. The proposed liquidation plan asks investors to assign to the Liquidating Trustee all claims against third parties who may have committed acts which make them liable under contract, tort, general corporate or securities laws to the individual Investors. Individual holders who vote "yes" will automatically assign all of their claims. The proposed Liquidation Plan also contains an "Opt-Out Election" for investors who feel that they may be better off pursuing an individual claim rather than a group claim.

To further complicate this situation, brokerage firms Next Financial Group, Inc.; QA3 Financial Corp.; and Securities America, Inc. are already embroiled in a putative class action lawsuit for their role as selling agents in the Provident Energy and Shale Royalties securities offerings. Investors who choose to do so, can also opt out of the class action.

In other words, investors who purchased Provident Energy and Shale Royalties interests currently have three alternate ways to recover their losses from stockbrokers: (1) approve the pending Chapter 11 liquidation plan; (2) participate in the putative class action (assuming they were customers of the above class action defendants); or (3) opt out of both and pursue an independent securities arbitration claim. The first two options are still awaiting approval from the court. The third option, securities arbitration, is immediately available. Although every individual investor's situation is different, opting out of a group claim may make more sense when the investor has a particularly meritorious claim or when there are additional unsuitable investments involved that are not covered by any of the group claims. Before making a decision, investors should explore each of these options with a great deal of care.

February 24, 2010

Medical Capital Securities Fraud Lawsuit Update

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.

December 4, 2009

Medical Capital Holdings & Provident Asset Management Securities Fraud Update

Since my last two blog postings about the Medical Capital securities class action lawsuits pending in California, I have heard from several investors that were defrauded into purchasing not only Medical Capital Holdings, but also Provident Asset Management. Brokers who recommended either one of these private placement investments have a lot of explaining to do. Before recommending any investment, brokers have a fiduciary duty to exercise due diligence in determining whether an investment is appropriate and suitable for their customer. Defrauded investors interested in recouping their investment losses should consider all of their legal options, including the filing of a securities arbitration claim against their stockbroker or investment advisor that recommended the investment.

Below is a brief overview of the Provident Asset Management and Medical Capital securities fraud matters.

Provident Asset Management

Thumbnail image for provident.jpgOn July 1, 2009, the SEC charged Provident Royalties LLC, Provident Asset management, and its founders with securities fraud for running what is alleged to be a $485 million Ponzi scheme involving at least 7,700 investors. The complaint also names as defendants numerous entities through which Provident raised funds: Provident Energy 1, LLP; Provident Energy 2, LLP; Provident Energy 3, LLP; Shale Royalties II, Inc.; Shale Royalties 3, LLC; Shale Royalties 4, LLC; Shale Royalties 5, LLC; Shale Royalties 6, LLC; Shale Royalties 7, LLC; Shale Royalties 8, LLC; Shale Royalties 9, LLC; Shale Royalties 10, LLC; Shale Royalties 11, LLC; Shale Royalties 12, LLC; Shale Royalties 13, LLC; Shale Royalties 14; LLC Shale Royalties 15, LLC; Shale Royalties 16, LLC; Shale Royalties 17, LLC; Shale Royalties 18, LLC; Shale Royalties 19, LLC; and Shale Royalties 20, LLC.

In addition, a consolidated securities class action is currently pending in the U.S. District Court for the Northern District of Texas against brokerage firms Next Financial Group, Inc.; QA3 Financial Corp. and Securities America, Inc. for their role in recommending these investments to their brokerage clients. Customers who were defrauded by these firms can participate in the class action or, in the alternative, pursue their own independent securities arbitration claim.

Medical Capital Holdings

Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for medcap.jpgOn September 18, 2009, a class action lawsuit was filed in the Central District of California against the following brokerage firms Securities America, Inc., Ameriprise Financial, Inc., CapWest Securities, Inc, and Cullum & Burks Securities, Inc on behalf of investors that invested in Medical Capital Notes issued by Medical Provider Financial Corp. III, IV, V and/or VI.

On November 13, 2009, a separate class action lawsuit was filed in the Central District of California against National Securities Corporation for their involvement in recommending Medical Capital Notes to their customers.

There are also many other brokerage firms who aggressively sold Medical Capital Notes and Provident/Shale interests to their customers who were omitted from the various class action lawsuits, including some large brokerage firms and smaller regional firms. In addition to the class action defendants discussed above, I have heard from investors who invested in Medical Capital through brokers working with Okoboji Financial Services, Redwine Securities and others that are still being reviewed.

Related Blog Posts:

Medical Capital Class Action or Arbitration: Investors Should Consider Their Options

Is Mass-Arbitration in the Client's Best Interest?

Are Securities Arbitration Cases More Financially Rewarding for Investors than Class Actions?