The Massachusetts Securities Division filed a complaint today against Securities America, charging the broker-dealer made omissions and misleading statements when it sold approximately $697 million in promissory notes.
The promissory notes, which were private placement securities, were issued by corporations owned by Medical Capital Holdings Inc. The division is seeking a cease and desist order and an administrative fine against Securities America and restitution for all Massachusetts investors who bought the notes.
According to the administration complaint, Securities America was a placement agent for the sale of the notes from 2003 through 2008. Medical Capital raised funds by issuing the notes, which then would be used to purchase batches of medical receivables to be held in trust for each of its corporations that issued the notes, the complaint says. Other complaints have been leveled against Securities America, a subsidiary of Ameriprise Financial, regarding the sale of Medical Capital securities and tenants in common products. Last week, Securities America CEO Steve McWhorter announced he would retire after 22 years of service to spend more time with his family.
Private placement securities are supposed to be for "accredited" investors, but unsophisticated investors placed their life savings into Medical Capital notes based on recommendations from Securities America that the investments were suitable, the complaint charges. More than 400 registered reps of Securities America sold the notes using private placement memorandums, marketing flyers and pamphlets, the complaint says. The notes were characterized as "secured" in material from Medical Capital and Securities America, the division says.
Medical Capital issued more than $1.7 billion in notes from 2003 to 2009, and Securities America sold 37% of the total, the complaint says. Securities America sold the notes to more than 60 Massachusetts investors, who purchased approximately $7.2 million of them, it adds. The brokerage firm received more than $26 million in compensation and top executives enjoyed vacation trips such as golfing in Pebble Beach and stays in Las Vegas resorts, which were paid by Medical Capital, the complaint says.
Since August 2008, Medical Capital has defaulted on all of its outstanding notes and is in permanent receivership, leaving millions of dollars of investors' life savings frozen and illiquid, the complaint says.
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