Securities America just took the first hit from its involvement with defunct Medical Capital Holdings, a former California lender.
An arbitration panel at the Financial Industry Regulatory Authority imposed a $1.2 million arbitration award on the independent broker-dealer and Randall Ray Talbott, one of its affiliated registered reps. In an award handed down Dec. 31, FINRA effectively backed up claims that Securities America breached its fiduciary duty, violated industry rules, failed to properly supervise one of its brokers, and intentionally and negligently misrepresented facts related to the sale of private placements from Medical Capital.
The decision held Securities America and Talbott liable for $734,118, the amount that the claimant, Josephine Wayman, invested in the private placements. Other amounts include a $250,000 award for punitive damages, and the rest covered legal and procedural fees.
“The award was based on the specific facts of this investor’s case, and we disagree with the outcome,” Janine Wertheim, chief marketing officer for Securities America said this morning. “Securities America does not believe it acted inappropriately in the sale of these investments.”
The ruling is the latest wrinkle in the ongoing legal battle between Securities America and various oversight bodies concerning the Medical Capital private placements. Regulators from Massachusetts and Montana have accused Securities America of subpar due diligence on Medical Capital’s debt, and want to hold the independent broker dealer responsible for investor losses. The attorney general in Massachusetts filed a complaint in January 2010, saying it withheld material information from advisors and investors about the heightened risks associated with the Medical Capital debt.
In August, the Montana Commissioner of Securities & Insurance followed with a similar complaint. Securities America was one of more than 40 independent broker-dealers that sold the Medical Capital Holdings notes, according to press reports. The Montana complaint, however, claimed it was responsible for selling $697 million, or 37%, of all Medical Capital notes issues nationwide since 2003.
Hearings in Massachusetts began on Sept. 30. Although there is no telling when they will wrap up, company executives expect a decision in January or February. It was unclear at press time when proceedings might begin on the Montana charges.
Although FINRA provided the forum for the hearings, it did not play a role in the arbitration panel’s decision.
Medical Capital has its own problems, too. The Securities and Exchange Commission charged Medical Capital and two of its executives with securities fraud in July 2009, and the company has since been placed in receivership, because the SEC says it failed to make interest and principal payments on almost $1 billion of notes.
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access