Corporate & Securities Law

In a highly unusual legal maneuver in its battle with Massachusetts securities regulators, Securities America is requesting that other broker-dealers that sold the private-placement investments of Medical Capital Holdings be issued subpoenas.  The move is designed, according to InvestmentNews, to demonstrate that Securities America met industry standards when 400 of its affiliated brokers sold close to $700 million of now worthless Medical Capital notes to clients.  Securities America is one of dozens of broker-dealers that sold the series of Medical Capital private placements.  Last summer, the SEC charged Medical Capital with fraud in an alleged $2.2 billion Ponzi scheme.

In January, The Massachusetts Securities Division sued Securities America, alleging that it misled clients who bought the notes.  According to recent documents related to the Massachusetts case, Securities America is attempting to dispel the concept that it had a duty to show investors due-diligence reports done by third-party firms that raised questions about Medical Capital.

The Massachusetts motion quotes the firm as saying that it "intends to show that its practices were consistent with that of other broker-dealers, including those who sold Medical Capital."

Not so fast say regulators in Massachusetts.  "Industry standard does not pertain to the case at hand," the Massachusetts Securities Division wrote in a May 28 motion in response to a Securities America legal filing.  Securities America's "basis for requesting subpoenas to be issued on part of the industry is premised on a very dangerous false presumption that its duty to disclose information to investors is determined by what other broker-dealers who also sold Medical Capital notes disclosed to their investors," according to the document.

An administrative hearing at the Massachusetts Securities Division is expected on Securities America's request next month.