Securities America seeks to have B-Ds subpoenaed over private placements

In a highly unusual legal maneuver in its battle with Massachusetts securities regulators, Securities America Inc. is requesting that other broker-dealers that sold the private-placement investments of Medical Capital Holdings be issued subpoenas — a move designed to demonstrate that Securities America met industry standards when 400 of its affiliated brokers sold close to $700 million of now worthless MedCap notes to clients. Securities America is one of dozens of broker-dealers that sold the series of Medical Capital private placements. Last summer, the Securities and Exchange Commission charged Medical Capital with fraud in an alleged $2.2 billion Ponzi scheme. In January, the Massachusetts Securities Division sued Securities America, alleging 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.” Regulators in Massachusetts, however, have already barked at the move. “Industry standard does not pertain to the case at hand,” the Massachusetts Securities Division wrote in a May 28 motion in response to an earlier 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,” the document continued. The legal back-and-forth between Securities America and Massachusetts securities regulators is moving toward an administrative hearing in July before a hearing officer within the Securities Division. “Clearly [Securities America] is attempting to delay the matter at hand by giving the appearance that what its seeks to establish is industry standard, when in reality it is but a blunt attempt to impede on valid ongoing investigations and fog the facts in this case with biased testimony and evidence from non-party,” the Massachusetts regulators' document concluded. In March, the Massachusetts Securities Division subpoenaed six other broker-dealers, looking for information about sales of Medical Capital private placements by those firms' advisers. Two firms were shocked by the request, saying their brokers never sold the product. Securities America is by far the largest sales force that sold the product. Janine Wertheim, a Securities America spokeswoman, was not available to comment.