Former stockbroker found guilty of fraud in MedCap sales

A former stockbroker in Colorado who sold more than $1 million in Medical Capital notes to several elderly investors was found guilty yesterday of 15 felony security fraud counts and faces several years in jail when sentenced in November.
The broker, John Brady Guyette, 72, was convicted of selling Medical Capital Holdings Inc. investments he knew were nonperforming, according to a statement by the Weld County District Attorney’s Office in Greeley, Colo.
Mr. Guyette was a broker affiliated with the now-defunct Community Bankers Securities LLC in 2008 when he sold the notes. According to a statement by the district attorney’s office, Mr. Guyette sold the notes despite reports and indications that the private-placement investment was not performing. He did not share pertinent information with potential investors before selling the Medical Capital notes, which later were revealed to be a $2.2 billion Ponzi scheme.
Mr. Guyette was originally charged in February 2012 with securities fraud for selling the notes. The 15 convictions of securities fraud include one conviction as a course of business and 14 counts for making an untrue statement or material omission, one count for each investor.
A Class 3 felony mandates four to 12 years of time in jail, according to Colorado Securities Commissioner Fred Joseph. Mr. Guyette’s conviction of securities fraud re-emphasizes that “it is incumbent on [an adviser] to know what he’s selling,” Mr. Joseph said. “He didn’t look at the accounting and financial statements” of the Medical Capital notes.
Mr. Guyette’s attorney, Robert Ray, said he had no comment about the conviction.
Mr. Guyette’s clients included one investor in her 90s, two in their 80s and a handful in their 70s, Mr. Joseph said.
According to the Weld County complaint and information, Mr. Guyette sold $1.3 million in MedCap notes to the investors between August and December 2008. During that time, Medical Capital was beginning to unravel and had missed some payments to investors in previous note offerings.
At the center of the Weld County complaint against Mr. Guyette was the allegation that he sold Medical Capital notes to investors after the company began having trouble making payments to some investors.
Mr. Joseph said he believes that Mr. Guyette’s was the only criminal conviction stemming from the Medical Capital notes Ponzi scheme.
The Securities and Exchange Commission charged Medical Capital and its two founders, chief executive Sidney Field and president Joseph Lampariello, with fraud in July 2009, but the SEC files only civil complaints. Dozens of broker-dealers with independent-contractor reps sold the notes, and about half of investors’ money — roughly $1 billion — is gone, according to regulators. Many of the broker-dealers that sold Medical Capital notes have since shut down, crushed by legal costs stemming from investor lawsuits.