A deal may in the works between Securities America and investors who lost hundreds of millions of dollars from soured private-placement deals in Medical Capital Holdings and Provident Royalties. The story was first reported by Investment News on March 28.

Financial problems related to investor lawsuits in the private placements have been a growing source of concern for the broker/dealer. Now, it appears a settlement offer could be on the table.

Details of the offer have not been revealed.

Securities America sold about $400 million in private placements in Medical Capital Holdings. In July 2009, the Securities and Exchange Commission (SEC) charged the company with fraud, accusing it of essentially running a Ponzi scheme. That same month, the SEC also charged Provident Royalties with fraud.

Earlier this month, a federal judge denied a proposed $21 million settlement between Securities America and the plaintiffs in the case. If the settlement had occurred, investors would likely have received only pennies on the dollar.

And while Securities America may not have enough capital to pay plaintiffs 100 cents on the dollar, its parent company, Ameriprise, does.

As reported in the Investment News article, Securities America has reportedly informed its 1,800 brokers of the proposed settlement.

Late last Friday, Securities America received news that a federal judge would not be approving the broker/dealer’s request for a $21 million class action settlement. The case involves soured private-placement deals in Medical Capital Holdings and Provident Royalties.

As reported March 19 by Investment News, the decision has been closely watched by hundreds of investors who are suing the firm for financial losses they incurred in Med Cap and Provident. If the settlement had been approved, investors would have been forced to drop their arbitration claims and join the class action lawsuit.

And in doing so, investors would have likely received only pennies on the dollars for their losses.

In July 2009, the Securities and Exchange Commission (SEC) charged both Medical Capital and Provident Royalties with fraud. Two state securities regulators – Montana and Massachusetts – also are suing Securities America.

During the class-action hearing, Judge W. Royal Furgeson Jr. centered in on the relationship between Securities America and its parent company, Ameriprise Financial Inc. Among other things, Furgeson noted that Ameriprise benefited from “positive revenue growth” at Securities America while it insulated itself from the potential liability of Securities America brokers who sold the private placements to investors.

Private-placement deals pushed by Securities America in Medical Capital Holdings and Provident Royalties have left investors stranded on a financial limb. Now, they have a new worry – and that is whether to resolve their complaints through arbitration or roll their claims into two existing class-action lawsuits again Securities America.

Ewald Groetsch is one of those investors facing such a dilemma. As reported March 4 by the New York Times, Groetsch lost $500,000 after investing in Medical Capital Holdings which, like Provident Royalties, was charged with fraud by the Securities and Exchange Commission (SEC) in 2009.

According to the New York Times story, Groetsch – who suffers from dementia – became lonely after his wife died in 2003 and struck up a relationship with a broker from Securities America. Groetsch eventually put the majority of his portfolio into a risky security – i.e. Medical Capital.

As for the Securities America broker, he portrayed the investment as “safe and secure.” That wasn’t the case, however, and Groetsch ultimately lost his entire investment.

Groetsch has since filed an arbitration claim with the Financial Industry Regulatory Authority (FINRA).

The lawyers in the class-action case involving Medical Capital and Provident Royalties contend that investors’ arbitration claims could threaten the financial position of Securities America and its ability to pay for a proposed settlement. The plaintiffs’ lawyers disagree, stating that such reasoning is misleading.

Earlier this year, arbitration proved successful for at least one investor who sued Securities America. In January, FINRA awarded Josephine Wayman nearly $1.2 million for her claim against the broker/dealer.

Workman Securities, a big seller of private placements in Medical Capital Holdings and Provident Royalties, has reached an agreement with the Financial Industry Regulatory Authority (FINRA) to settle issues over the deals. The broker/dealer will pay $700,000 for partial restitution to more than a dozen clients with legal claims against Workman for sales of the risky investments involving Med Cap and Provident.

Both Medical Capital and Provident Royalties were charged with fraud by the Securities and Exchange Commission (SEC) in the summer of 2009.

As reported Feb. 14 by Investment News, Workman’s insurance carrier, Catlin Specialty Insurance Co., has paid $2.3 million to various clients who’ve sued the firm.

Workman Securities is one of many broker/dealers that sold investors on risky private-placement deals involving Medical Capital and Provident Royalties. Workman reps sold just over $9 million of private placements in Provident, according to U.S. bankruptcy court filings.

According to FINRA’s Broker Check Web site, Workman allegedly was lacking in the supervision and due diligence department at the time it sold the private placements.

“The firm failed to have reasonable grounds to believe that a private placement offered by an entity pursuant to Regulation D was suitable for any customer after the firm received red flags that the entity had financial issues and was not timely making interest payments,” the site alleges.

Broker Check goes on to say: “[Workman] failed to enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulation and Finra rules in connection with the sale of the private placement offered by the entity pursuant to Regulation D. The firm failed to conduct adequate due diligence of the private placement offered by the entity pursuant to Regulation D.”

If you have a story to tell involving Medical Capital Holdings or Provident Royalties, please contact a member of the securities fraud team at Maddox, Hargett & Caruso.

Arbitration claims connected to Medical Capital Holdings and Provident Royalties and other risky deals – including those involving non-traded REITs – could grow much bigger in number following a recent regulatory decision by the Securities and Exchange Commission (SEC).

The new regulation gives investors the option of choosing an all-public arbitration panel to have their disputes with brokers reviewed. In other words, investors can select a panel composed entirely of individuals who have no connection to the securities industry. Typically, the three-person panel is made up of two public arbitrators and one industry professional.

As reported Feb. 6 by Investment News, the SEC’s ruling comes on the heels of a pilot program by the Financial Industry Regulatory Authority (FINRA) that allowed certain investors the choice of substituting an industry arbitrator with a public panelist.

The rule change does not affect disputes among brokerage firms or between brokers and their firms.

“This is a tremendous step in the right direction,” said Peter Mougey, president of the Public Investors Arbitration Bar Association, which represents plaintiff’s attorneys, in the Investment News article.

If you have a concern about your investments with your independent broker/dealer, please contact a member of the securities fraud team at Maddox, Hargett & Caruso.

It’s been a tumultuous year for independent broker/dealers, with many closing their doors over private-placement deals gone bad, rising legal costs, and capital violations. Now, it appears QA3 Financial Corp. has become the latest B-D to bite the dust.

With bankruptcy looming, as well as a possible net capital violation, QA3 Financial told 400 reps last week of its impending future plans. According to a Feb. 4 story by Investment News, Steve Wild, QA3’s owner and CEO, delivered the news via an email approximately one hour after the market closed.

“In light of the arbitration award rendered against QA3 on January 14, and the fact that our errors and omissions carrier has not yet provided coverage set forth in our policy, we have made the difficult decision to cease conducting business as a broker-dealer effective as the close of business on February 11,” the email read.

QA3’s exit from the brokerage business follows at least two dozen firms that have either shut down or were forced to close their doors in the past year.

QA3’s financial issues have been in the making for some time. The broker/dealer was a big seller of private placements in Medical Capital Holdings and Provident Royalties LLC – both of which face fraud charges from the Securities and Exchange Commission (SEC).

In September, bankruptcy rumors began to circulate because of a dispute between QA3 and its insurance carrier and the amount of coverage that was needed for the growing number of legal claims from investors over sales of high-risk private placements.

Last month, a Financial Industry Regulatory Authority (FINRA) arbitration panel ruled in favor of an elderly couple who had a filed a claim against QA3 for real estate deals that had soured. The arbitration award was for $1.6 million.

If you have a story to tell involving private placement deals or independent broker/dealers issues, please contact a member of the securities fraud team at Maddox, Hargett & Caruso.

Private-placements deals in Medical Capital Holdings and Provident Royalties have become a bone of contention for the Financial Industry Regulatory Authority (FINRA), which plans to focus new attention on the broker/dealers responsible for selling the opaque and illiquid private investments to investors.

As reported Feb. 2 by Investment News, private-placements are on FINRA’s hot-button issue list because of the devastating financial losses they’ve caused for investors in the past year. In many instances, the losses are tied to the broker/dealers selling private placements as suitable investments for their clients, yet failing to perform appropriate due diligence on certain private offerings.

Two such offerings include private placements in Medical Capital and Provident Royalties. Both companies were charged with securities fraud by the Securities and Exchange Commission (SEC) in 2009 for misrepresentation and misappropriating hundreds of millions of dollars of investors’ money.

A number of brokers/dealers that sold both products also face lawsuits by regulators, as well as arbitration claims filed by investors.

James Shorris, executive vice president and executive director of enforcement for FINRA, says oversight of private placements will be a “major, major, major initiative” at FINRA in the future. During his remarks at the annual meeting of broker/dealer members of the Financial Services Institute on Feb. 2, Shorris specifically named private placements associated with Medical Capital Holdings and Provident Royalties LLC.

In addition to private placements, Shorris says FINRA also will step up its scrutiny of non-traded REITs, as well as other exotic investments such as reverse convertibles and leveraged exchange-traded funds.

Private placement investments in Medical Capital Holdings and Provident Royalties have caused financial devastation for hundreds of investors after the deals later soured and the companies issuing the securities went belly up. Now, several independent broker/dealers that sold the products to investors are facing financial issues of their own.

As reported Jan. 17 by Investment News, QA3 Financial Corp. is one of those broker/dealers. The story says QA3 is looking at bankruptcy because of a dispute with its insurance carrier over the amount of coverage available for legal claims stemming from private placement sales in Medical Capital and Provident Royalties.

According to the article, QA3 claims it had coverage for $7.5 million of legal claims, damages and expenses, while its carrier, Catlin Specialty Insurance Co., said the coverage is capped at $1 million.

A lawsuit filed in September states that QA3, which includes about 400 independent representatives and advisers, is facing bankruptcy because of its issues with Catlin. Catlin later sued QA3, claiming that private-placement claims under the policy were, in fact, limited to $1 million. That suit is pending.

Like a number of broker/dealers that sold private placement in Medical Capital and Provident Royalties, QA3 is facing a slew of arbitration claims filed by clients who suffered huge financial losses in their investments when the companies were sued by the Securities and Exchange Commission for fraud. Today, both Medical Capital and Provident Royalties are in receivership.

In the case of Medical Capital, Securities America was a top seller of Med Cap private placements. QA3 was a leading seller of Provident deals. By some estimates, QA3 sold $32.6 million in Provident notes, reportedly collecting almost $7 million in commissions.

Broker/dealer Securities America is finding itself entrenched in arbitration claims filed by disgruntled investors over soured private-placement deals involving the now-bankrupt Medical Capital Holdings.

As reported Jan. 9 by Investment News, the broker/dealer could face 150 or more arbitration claims over the next 12 to 18 months. The claims, filed with the Financial Industry Regulatory Authority (FINRA) involve $90 million in investor losses connected to Medical Cap Holdings.

Last month, Securities America’s legal woes began to mount in earnest when a FINRA arbitration panel awarded almost $1.2 million in damages and legal fees to an elderly client who had sued the broker/dealer and broker Randall Ray Talbott for misrepresentation over sales of Medical Capital private placements.

In July 2009, the Securities and Exchange Commission (SEC) filed fraud charges against Medical Capital in connection to sales of $77 million of private securities in the form of notes. In its complaint, the SEC accused the Tustin-based medical receivables firm of lying to backers as it allegedly raised and misappropriated millions of dollars of investors’ money while failing to disclose information about $1.2 billion in outstanding notes and $993 million in notes that had entered default.

In addition to arbitration claims from investors, Securities America faces legal issues from state securities regulators. Securities divisions in Massachusetts and Montana filed lawsuits again the broker/dealer last year over sales of Medical Capital private placements.

Over the years, many independent broker/dealers have pitched investments in Medical Capital notes to investors. Securities America, however, is by far the biggest seller of Med Cap private placements, with 400 brokers selling almost $700 million of the products.

Securities America has about 1,900 representatives and advisers. It is owned by Ameriprise Financial.

If you have a story to tell involving Securities America and/or investments in Medical Capital Holdings, please contact a member of the securities fraud team at Maddox, Hargett & Caruso.

Soured private-placement deals left dozens of broker/dealers in dire straits this past year, forcing many to close their doors entirely. As reported Jan. 2 by Investment News, the broker/dealer community has shrunk by 9% since 2005 to 4,619. Through November 2010, the number of broker/dealers registered with the Financial Industry Regulatory Authority (FINRA) was 101 below the total at the end of 2009.

The reasons behind the decline vary. Bad business practices over private placements tied to such firms as Medical Capital Holdings and Provident Royalties led several broker/dealers to bite the dust in 2010. Others closed down because of capital-requirement violations. And some went out of business due to soaring legal costs associated with investor lawsuits.

In March 2010, GunnAllen Financial, which at one time had 1,000 affiliated registered representatives, closed its doors because of net-capital violations. Several months later, Jesup & Lamont Securities Corp. followed suit.

Meanwhile, a slew of broker/dealers that allegedly sold private-placement offerings from the now-defunct firms of Medical Capital Holdings and Provident Royalties are the subject of class actions and arbitration complaints from investors. Okoboji Financial Services, a top seller of Provident Royalties’ private placements, closed its doors last May.

One month later, Dallas-based Cullum & Burks Securities, a leading seller of private placements in Medical Capital Holdings, also shut down its business.

More failures and business closings of independent broker/dealers are predicted in 2011.

“It’s been a horrible market and firms are thinly capitalized,” said Larry Papike, president of Cross-Search, a recruiting firm specializing in independent representatives and executives at such firms, in the Investment News article.