Despite warnings, Securities America advisers hawked private placements, new suit claims

Advisers with Securities America Inc. continued to sell offerings of allegedly faulty private placements after a firm executive sounded the alarm bell about these deals last year, according to a recently filed lawsuit.

Advisers with Securities America Inc. continued to sell offerings of allegedly faulty private placements after a firm executive sounded the alarm bell about these deals last year, according to a recently filed lawsuit.
The lawsuit also claims that Securities America “offered and sold hundreds of millions of dollars’ worth of securities in the form of notes” of Medical Capital, a medical receivables company that faces charges of fraud from the Securities and Exchange Commission.
The suit, which was filed last Thursday in federal court in Omaha, Neb., and is seeking class action status, claims that Securities America sold the offerings of Medical Capital Holdings Inc. as late as October 2008. A few months earlier, a Securities America executive, W. Thomas Cross, wrote to a Medical Capital official that he feared “a panicked run on the bank” about Med Cap.
An official with Securities America said the claim that Securities America continued selling Medical Capital notes after Mr. Cross’ concerns surfaced was hogwash.
“Securities America never marketed or sold Medical Capital VI, and we did not accept any new investment into any Medical Capital funds after Mr. Cross became concerned,” wrote Janine Wertheim, senior vice president and chief marketing officer for Securities America, in an e-mail.
In July, the SEC charged Medical Capital Holdings with fraud in the sale of $77 million of private securities in the form of notes. Since that time, a court-appointed receiver has questioned the value of Medical Capital’s assets, throwing into question the structure of the six deals Medical Capital sold from 2003 to 2008. In total, Medical Capital raised $2.2 billion from investors.
Mr. Cross’ dire predictions did not stop Securities America from selling the Medical Capital notes, the lawsuit alleges. “But [Securities America] apparently was not all that alarmed because less than a month later, in August 2008, [the firm] signed on to distribute, promote, offer and sell still more Med Cap securities, this time on behalf of” the sixth and final offering by Med Cap, Medical Provider Funding Corp. VI.
Along with selling the sixth deal through October, Securities America continued selling Medical Capital’s previous offering, Medical Provider Financial Corp. V, the lawsuit claims.
The firm also allegedly neglected to warn investors of the potential dangers in the Medical Capital notes, the lawsuit states. “Worse still, [Securities America] did so without uttering a word of caution to its clients,” the suit states.
The suit, which was filed on behalf of Ilene Grossbard of Sarasota, Fla., alleges that Securities America sold the fifth Medical Capital offering “via verbal false and misleading statements and omissions.” Ms. Grossbard invested $112,000 in the fifth Medical Capital deal in March and April 2008.
The lawsuit also names Securities America’s parent company, Ameriprise Financial Inc., as a defendant.
Chris Reese, a spokesman for Ameriprise, did not comment.