Corporate & Securities Law

MedCap Investors Want Answers From Securities America

By Mark Maddox

In an ironic twist, just two days after the state of Massachusetts filed charges against Securities America for allegedly misleading investors about sales of Medical Capital notes, the Omaha-based broker/dealer issued a press release announcing new members for its 2010 Advisory Council. The irony is the council itself. According to the release, its purpose is to provide an ?opportunity for advisors to give feedback on the strategy, tactics and marketing message of Securities America.?

Considering the recent allegations against Securities America, those messages might need some serious review indeed.

Massachusetts Secretary of State William Galvin sued Securities America on Jan. 26, accusing the company of committing securities fraud on a ?massive scale.? In the complaint, Galvin alleges that Securities America committed ?acts of material omissions and misleading statements? when it sold nearly $700 million of promissory notes to Medical Capital investors.

According to the complaint, Securities America kept investors in the dark about various risks and other information concerning MedCap notes. ?These risks were known to [Securities America]. Year after year, the due diligence analyst, retained by [Securities America] to conduct a review of the various Medical Capital offerings specifically requested, and at many times pleaded, that investors be informed of certain heightened risks,? the complaint reads.

Those risks included Medical Capital?s lack of audited financials.

The Massachusetts investigation also uncovered evidence that top executives at Securities America enjoyed vacation trips to Pebble Beach and Las Vegas resorts courtesy of Medical Capital.

From 2003 through 2009, Medical Capital issued more than $1.7 billion in notes; Securities America placed $697 million of that amount. In return, Securities America took in more than $26 million in compensation, according to the complaint.

Securities America has denied all charges levied by Massachusetts regulators.

Medical Capital currently is in receivership. It was sued by the Securities and Exchange Commission (SEC) in July 2009 for allegedly defraudeding investors out of at least $18.5 million. On Aug. 3, 2009, the SEC obtained an emergency court order halting a $77 million offering fraud perpetrated by the company.

If you suffered investment losses in Medical Capital notes sold by Securities America, please contact us. A member of our securities fraud team will help you determine if there is a viable claim for recovery.

Full post as published by Representing Investors on January 28, 2010 (boomark / email).