Corporate & Securities Law

Mass. Complaint Offers Damaging Evidence In Securities America Case

By Steven Caruso

A complaint against Securities America contains a lengthy and potentially damaging list of allegations against the Omaha broker-dealer and its sales of private offerings in Medical Capital Holdings. The complaint, which was filed Jan. 26 by Massachusetts Secretary of State William Galvin, accuses Securities America of not only misleading investors but also intentionally making material misrepresentations and omissions in order to get them to purchase investments in Medical Capital Notes.

Medical Capital was sued by the Securities and Exchange Commission (SEC) in July 2009 and placed into receivership one month later. Since then, its collapse has resulted in about $1 billion in losses for investors throughout the country.

Massachusetts? securities division launched an investigation into Securities America in December 2009, after receiving complaints from investors who had placed their life savings into Medical Capital based on recommendations by Securities America. According to the complaint, many of these investors were unaware of the risks involved in the offerings. Securities America, on the other hand, was fully aware of these risks, the complaint says.

?Year after year, the due diligence analyst hired 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.

Many investors who purchased Medical Capital Notes had no idea as to how the notes were actually structured. In reality, the offerings were highly complex, speculative securities and considered suitable only for the most sophisticated of investors. In addition, many investors believed they were buying ?fully secured? investments when they purchased Medical Capital Notes. As it turns out, that was not the case.

Other information that Securities America allegedly kept from investors included Medical Capital?s lack of audited financials. It was a concern that even Securities America?s own president, Jim Nagengast, felt. In a 2005 email, Nagengast wrote the following:

?My big concern is the audited financials. At this point, there is no excuse for not having audited financials . . . it is a cost they simply have to bear to offer product through our channel. We simply have to tell them if they don?t have financials by XXXX date, we will stop distributing the product on that date. Then they can decide if it?s worth to spend $50,000 to have it done. If they won?t spend the money, that should give us concerns.?

Concerns aside, Securities America ignored its president?s recommendation and continued selling millions of dollars worth of Medical Capital Notes. They did this knowing full well that no audited financials had ever been conducted on any of the Medical Capital entities issuing the notes

If you have a story to tell involving Securities America and/or Medical Capital Notes, please contact a member of our securities fraud team.

Full post as published by Representing Investors on January 30, 2010 (boomark / email).