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Medical Capital Holdings and Securities America Failed In Due Diligence Department
The Medical Capital case and now Securities America case underscore what can happen when broker/dealers fail to perform due diligence on the products they sell to unsophisticated investors. Medical Capital is a Tustin, California, company that provides financing to healthcare providers by buying their accounts receivables and making secured loans. In July, Medical Capital was sued by the Securities and Exchange Commission (SEC) for allegedly charging investors $18.5 million in undisclosed administrative fees.
An amended lawsuit brought new charges, including allegations that Medical Capital was operating a Ponzi scheme by using money from new investors to pay older ones. Meanwhile, the SEC says Medical Capital saddled new investors with “fake, overstated and/or aged or worthless receivables.”
Securities America, a subsidiary of Ameriprise Financial, is one of several broker/dealers that sold investments - i.e. private placement notes - issued by Medical Capital. In fact, Securities America placed more than one-third of the $1.7 billion in notes that Medical Capital issued.
Massachusetts regulators are now saying that Securities America hid the risks of these notes from investors. On Jan. 26, Secretary of State William F. Galvin filed a complaint against the Omaha-based broker/dealer for selling nearly $700 million in promissory notes without disclosing all of the risks associated with the products.
“Our investigation showed that Securities America ignored their own due diligence analysts and sold these notes to unsophisticated investors without telling them the risks involved,” Galvin said in a statement. “People invested their life savings, while this dealer hid from them the truth of what they were getting into.”
Securities America received more than $26 million in compensation from Medical Capital for selling the notes in question. It also footed the bill for some of Securities America’s top executives to indulge in swanky excursions at Las Vegas resorts and golfing outings in Pebble Beach.
Maddox Hargett & Caruso P.C. is conducting its own investigation of Medical Capital, Securities America and other broker/dealers that sold Medical Capital notes. If you have investment losses related to Medical Capital, please contact us. A member of our securities fraud team will evaluate your situation to determine if you have a viable claim for recovery.
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