Six broker-dealers subpoenaed over private placements

Mass. securities regulator looking for more info from independent firms

Mar 22, 2010 @ 4:18 pm

By Bruce Kelly

<b>William Galvin,</b> Secretary of the Commonwealth of Massachusetts (Bloomberg).
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William Galvin, Secretary of the Commonwealth of Massachusetts (Bloomberg).

Massachusetts securities regulators are chasing down information from six independent broker-dealers concerning the sales of two private placements that blew up last summer.

Secretary of the Commonwealth William Galvin said in a statement today that subpoenas have been sent to QA3 Financial Corp., National Securities Corp., CapWest Securities Inc., Independent Financial Group LLC, Investors Capital Corp. and Centaurus Financial Inc.

The Massachusetts Securities Division is requesting information on due-diligence efforts, suitability data and promotional materials related to the sale of private placements marketed by Medical Capital Holdings Inc. and Provident Royalities LLC, according to the statement.

The regulator has been increasing its scrutiny of sales of private placements by independent broker-dealers. In late January, the Securities Division slapped Securities America Inc. with a lawsuit, alleging that the firm misled investors who were sold high-risk private placements.

Specifically, the agency alleged that Securities America advisers sold $7.2 million in promissory notes to Massachusetts investors without disclosing all the risks involved. That case is pending.

Medical Capital and Provident issued billions in notes and other securities sold by a number of broker-dealers, according to today's statement.

“It also has become apparent that Securities America Inc. was not the only broker-dealers selling these” private placements, according to the statement.

Executives at a number of the six brokerage firms said they were surprised and startled to have received the subpoenas.

Dale Hall, the CEO of CapWest, said that the firm had done a preliminary search of its records so far, and it appeared that it had one client in Massachusetts. The information that Massachusetts regulators are looking for about the sale of private placements was similar to what the Securities and Exchange Commission and the Financial Industry Regulatory Authority had requested, he said.

Independent Financial Group did not sell either Medical Capital or Provident offerings, said Joe Miller, the firm's CEO.

Centaurus Financial also did not approve the sale of either sets of offerings, said Ron King, the firm's CEO. He noted that the company may have recruited a rep who sold the product at a prior broker-dealer, however.

Mark Goldwasser, CEO of National Securities, said he hadn't yet seen the subpoena and therefore could not comment.

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