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.