Industry professionals say the Financial Industry Regulatory Authority’s arbitration panel raised its credibility in the securities industry when it imposed a hefty penalty on Securities America for its role in selling an elderly woman private placement notes from Medical Capital Holdings, say industry professionals. The panel’s decision also sent a signal to broker-dealers that financial advisors should perform much more thorough due diligence on the soundness of companies issuing certain securities before allowing investors to participate in risky investments.
The decision stemmed out of arbitration held during a dozen hearings in Los Angeles last November and December. In a $1.2 million resolution handed down on New Year’s Eve, the FINRA arbitration panel effectively backed up claims that Securities America had breached its fiduciary duty to Josephine Wayman, the claimant. It also found that Securities America 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.
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