TAG | private placement of securities
Two Firms and Seven Individuals Sanctioned by FINRA for Selling Private Placements Without Conducting a Reasonable Investigation
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WASHINGTON — It was announced today on FINRA’s website that the Financial Industry Regulatory Authority (FINRA) has sanctioned two firms and seven individuals for selling interests in private placements without conducting a reasonable investigation. The companies whose securities were sold in these private placements were unrelated to the firms and individuals FINRA sanctioned. The companies ultimately failed, resulting in significant investor losses.
In their article it was announced that FINRA imposed sanctions against the following firms and individuals for failing to conduct a reasonable investigation of the sale of private placements offered by Medical Capital Holdings, Inc. (MedCap) and/or Provident Royalties, LLC.
- Workman Securities Corp., of MN, was ordered to pay $700,000 in restitution to affected customers. Robert Vollbrecht, Workman’s former President, was barred in any principal capacity, and fined $10,000.
- Timothy Cullum, former Chief Executive Officer, and Steven Burks, former President, of Cullum & Burks Securities, Inc., of Dallas, TX, a now-defunct firm, were each suspended in any principal capacity for six months and fined $10,000.
- Jeffrey Lindsey and Bradley Wells, two former executives with Capital Financial Services, Inc., of ND, were each suspended for six months in any principal capacity and fined $10,000.
- Jay Lynn Thacker, former Chief Compliance Officer for Meadowbrook Securities, LLC (fka Investlinc Securities, LLC), of MS, was suspended for six months in any principal capacity and fined $10,000.
- David William Dube, former Owner, President, Chief Compliance Officer and Anti-Money Laundering (AML) Compliance Officer of (now-defunct) Peak Securities Corporation, of FL, was barred for failing to conduct adequate due diligence, as well as a failure as AML Compliance Officer to detect, investigate and report numerous suspicious transactions in 10 customer accounts where “red flags” existed.
Additionally, FINRA fined Askar Corporation, of MN, $45,000 for its failure to conduct due diligence on a private placement from DBSI, Inc., another company that defaulted on its obligations. FINRA found that Askar only reviewed the offering documents and sales materials provided by DBSI before approving the product for sale, without independently verifying DBSI’s representations in the offering documents.
It was reported that FINRA found that broker-dealers who sold the MedCap, Provident and DBSI private placement offerings did not have reasonable grounds to believe that the private placements were suitable for any of their customers. Also, they failed to engage in an adequate investigation of the private placements and failed to establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations. Without performing proper due diligence, the firms could not identify and understand the inherent risks of these offerings. The sanctioned principals did not have reasonable grounds to allow the firms’ registered representatives to continue selling the offerings despite the red flags that existed regarding the private placements.
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “Senior officials at these firms failed to fulfill their responsibilities to customers by not conducting reasonable investigations of these unrelated offerings, especially in light of multiple red flags suggesting liquidity concerns, missed interest payments and defaults. FINRA will continue to look closely at sales of both affiliated and unaffiliated private placements to determine whether the selling firms fulfilled their responsibility to customers.”
In July 2009, the SEC filed a civil injunctive action in federal district court in which it sought, and was granted, a preliminary injunction to stop all MedCap sales. The SEC alleged that MedCap and its executives defrauded investors in MedCap VI by misappropriating approximately $18.5 million of investor funds. The SEC also alleged that MedCap misrepresented that it had never defaulted on or had been late in making interest or principal payments, when in fact, MedCap had defaulted on or was late in paying nearly $1 billion in principal and interest on the notes from its previous Regulation D offerings. The court appointed a receiver to gather and conduct an inventory of MedCap’s remaining assets. The SEC action is pending.
From 2001 through 2009, MedCap, a medical receivables financing company based in Anaheim, CA, raised approximately $2.2 billion from over 20,000 investors through nine MedCap private placement offerings of promissory notes. MedCap made interest and principal payments on its promissory notes until July 2008, when it began experiencing liquidity problems and stopped making payments on notes sold in two of its earlier offerings. Nevertheless, MedCap proceeded with its last offering, MedCap VI, which it offered through an August 2008 private placement memorandum.
On July 2, 2009, the SEC filed a civil injunctive action in the Northern District of Texas naming Provident and others, and the Court granted its request for a temporary restraining order and an emergency asset freeze and appointment of a receiver to take control of the entities, and marshal and preserve the assets for the benefit of the defrauded investors. All the named defendants subsequently agreed to the entry of a preliminary injunction, which remains in effect. In March 2010, FINRA expelled Provident Asset Management, LLC from membership for marketing a series of fraudulent private placements offered by its affiliate, Provident Royalties, LLC. (FINRA Case No. 2009017497201.)
From September 2006 through January 2009, Provident Asset Management, LLC marketed and sold preferred stock and limited partnership interests in a series of 23 private placements offered by an affiliated issuer, Provident Royalties. The Provident offerings were sold to customers through more than 50 retail broker-dealers nationwide and raised approximately $485 million from over 7,700 investors. Provident Royalties’ business plan included the acquisition of a combination of producing and non-producing sub-surface mineral interests, working interests and production payments in real property located within the United States. Although a portion of the proceeds of Provident Royalties’ offerings was used for the acquisition and development of oil and gas exploration and development activities, millions of dollars of investors’ funds were transferred from the later offerings’ bank accounts to the Provident operating account in the form of undisclosed and undocumented loans, and were used to pay dividends and returns of capital to investors in the earlier offerings, without informing investors of that fact.
It is noted that FINRA’s investigation of broker-dealers that sold the MedCap, Provident, DBSI and other troubled private placement offerings continues.
If you feel you have been a victim of these alleged fraudulent schemes, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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Another article from Bruce Kelly of InvestmentNews.com, March 21st., 2011, says that Ameriprise Financial Inc. is taking preliminary steps to help its beleaguered independent broker-dealer subsidiary, Securities America, Inc.
This past Friday, Securities America’s chief financial officer, Kelly Windorski, testified in a federal court in Dallas that the firm could go bust if a federal judge did not approve a $21 million class action settlement. The judge rejected the settlement later in the day.
This class action is part of a litigation that Securities America is facing after its brokers sold $400 million in private placements from 2003 to 2009 that are now in default. The firm has almost $9 million in excess net capital on hand.
Kelly goes on in his article that it’s been widely debated in the industry whether Securities America’s corporate parent, Ameriprise, will step in and infuse the firm with cash. At the moment, the brokerage has dwindling resources, is spending $2 million a month on lawyers and could be in danger of violating its net-capital requirement if it suddenly loses a handful of arbitration claims investors have brought against the firm over allegedly bad private placements. Securities America’s statement gave no specifics about how much money Ameriprise would be willing to contribute to the firm, but a Securities America spokeswoman said the parent company has reached out to the beleaguered firm.
“Ameriprise has reached out to us to determine whether it can help the parties find a reasonable resolution for all constituents,” wrote Janine Wertheim, a spokeswoman for the broker-dealer, which has about 1,800 reps and advisers. “We hope to develop a process in the coming days that would facilitate exploration of such a resolution and to have a good sense by the end of the week.”
“While Ameriprise Financial has no obligation to participate in Securities America’s settlement discussions, we have reached out to Securities America to determine if we can help the parties find a reasonable resolution to all constituents,” Ameriprise said in a statement published on its investor relations website.
Ameriprise said in its annual report that it was setting aside $40 million in reserves due to legal actions stemming from brokers at Securities America selling private placements of Medical Capital Holdings Inc. and Provident Royalties LLC. These were sold by dozens of independent broker-dealers in the last decade, the two series of private placements went into default in 2009 and the sponsor companies were later charged with fraud by the SEC. Securities America was by far the largest seller of Medical Capital notes, with brokers selling about $700 million of the product.
The InvestmentNews article said that Ameriprise previously had reached a proposed $28 million settlement with the class action plaintiffs suing Securities America. That proposed settlement is a separate fund from Securities America’s.
Federal Judge W. Royal Furgeson Jr. temporarily halted three arbitration claims from investors suing Securities America in order to weigh Securities America’s $21 million proposed settlement last month. Under the terms of that deal, the arbitration claims would have been rolled into the class action. Mr. Furgeson’s decision pushes one of two class actions, Billitteri v Securities America, et al., back to where it originated in U.S. District Court in the Central District of California. The case was moved to Dallas and landed before Mr. Furgeson this winter because he is overseeing the class action claim against Securities America and other broker-dealers that sold Provident Royalties investments.
If you feel you have been a victim of the alleged broker-dealer private placement schemes of Securities America Financial, Inc., Ameriprise Financial Inc ., Medical Capital Holdings, Inc., or any other broker-dealer, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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In a March 2, 2011, article from Investment News, Bruce Kelly writes that Ameriprise Financial Inc. has reached a $27 million settlement with investors who bought private placements that have gone bust from reps at its independent broker-dealer subsidiary, Securities America Inc., according to an attorney with knowledge of the matter.
Securities America is also being sued by securities regulators from Massachusetts and Montana but the status of those suits is not clear in the light of the proposed settlements. Mr. Furgeson will hold a hearing in federal court in Dallas on the proposed settlements on March 18. Lawyers for the plaintiffs in arbitration plan to argue vigorously against any settlement that would freeze investors’ arbitration claims against Securities America.
The InvestmentNews article states that the proposed settlement, which must be approved by a federal judge later this month to become final, comes two weeks after Securities America reached a $21 million potential settlement with the class action plaintiffs who sued Securities America and Ameriprise in 2009.
The article goes on to state that in one allegation from the suit, C. Richard Toomey, et al. v. Securities America Inc., et al, plaintiffs claimed that Securities America handed private placement memorandum to clients that contained untrue statements about the deals and omitted other material information about the deals.
This is all part of a labyrinth of litigation before federal judge W. Royal Furgeson Jr. in Dallas, stemming from dozens of independent broker-dealers, including Securities America, selling two series of private placement deals that have left investors with tens of millions of dollars of losses.
The Securities and Exchange Commission charged both Medical Capital and Provident Royalties with fraud in 2009.
Chris Reese, a spokesman for Ameriprise, said on Wednesday evening he could not confirm or deny the settlement. In its annual report earlier this week, Ameriprise said Securities America clients were facing almost $400 million in losses from the Medical Capital and Provident investments, and the firm also said it had set aside about $40 million in legal reserves for the claims.
It was noted that a key part of the potential Securities America settlement is the fact that it requires investors who have sued the firm through arbitration under the Financial Industry Regulatory Authority Inc. will have those claims halted. Investors would become part of the class. This has infuriated some investors, along with their attorneys, who want their claims to go forward through arbitration with hopes of winning 100 cents on the dollar, plus the potential for damages.
The firm was dealt a costly legal blow on New Year’s Eve when a Finra arbitration panel awarded almost $1.2 million in damages and legal fees to a client who sued the firm and a broker over the sale of Medical Capital private placements. The award included $250,000 in punitive damages.
“A class action settlement treats everyone fairly,” Mr. Girard said. He added that some plaintiff’s attorneys representing clients in Finra arbitration have a “conflict of interest” over the matter because they have clients at the front and the back of the long line of litigation against Securities America. Those at the back of the line run the risk of getting nothing if the firm runs out of money, he said.
InvestmentNews states that threat is substantial. Small to mid-sized independent broker-dealers that sold high risk private placements have gone out of business due to lawsuits and legal costs over the past two years. None have been as substantial as Securities America, which has about 1,800 reps and advisers who generated about $500 million in fees and commissions last year.
If you feel you have been a victim of the alleged broker-dealer private placement fraudulent schemes of Ameriprise Financial Inc ., Securities America, Inc., or any other broker-dealer, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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Marilyn Louise Yamanaka (CRD #2650202, Registered Representative, Clovis, CA) submitted a Letter of Acceptance, Waiver and Consent in which she was fined $5,000 and suspended from association with any FINRA member in any capacity for eight months. In light of Yamanaka’s financial status, a $5,000 fine was imposed. Without admitting or denying the findings, Yamanaka consented to the described sanctions and to the entry of findings that she participated in the sales of Universal Lease Programs (ULPs) totaling $408,273.39 to members of the public without providing her member firm with written notice about the sales, and failed to obtain her firms’ written approval. The findings stated that Yamanka received approximately $43,760 in commissions from her sales of the ULPs. The findings also stated that Yamanaka submitted documentation related to the ULPs to her firm and was told that the ULPs were not approved for sale. The findings also included that Yamanaka signed declarations in which she confirmed she had discussed the firm’s regulatory requirements with her supervisory principal; in these declarations, Yamanaka stated she had not offerred or sold securities except those her firm offered and approved, had not engaged in any outside business activity which involved private securities transactions or private placement of securities, unless the firm approved them in advance, and informed her firm of all outside business activities for which she directly or indirectly received compensation. FINRA found that all of these statements were false.
The suspension is in effect from Nov.15, 2010, through July 14, 2011. (FINRA Case #200916709018)
This appeared on the FINRA website’s Disciplinary Actions for January, 2011.
If you have been a victim of the alleged fraudulent schemes of Marilyn Louise Yamanaka, or a similar situation, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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