Medical Capital Update: Stockbroker’s License Revoked for Violating the Prohibition Against General Solicitations

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.

See related blog posting:

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