The
Financial Industry Regulatory Authority Inc. continues to slam broker-dealers for their sales of allegedly fraudulent private placements. The regulator issued a statement this morning disclosing sanctions against eight firms and ten individuals totaling more than $3.2 million in restitution to investors.
InvestmentNews yesterday
reported the largest of the sanctions, the $2 million in restitution by Next Financial Group Inc. The seven other firms are all independent broker-dealers and include Securities America Inc., which was the biggest seller of one series of private placements, notes issued by Medical Capital Holdings Inc. The Securities and Exchange Commission charged MedCap with fraud in 2009.
Brokers at Securities America — bought this summer by Ladenburg Thalmann & Co. Inc. from
Ameriprise Financial Inc. — sold $700 million in Medical Capital notes. The $250,000 censure and fine levied against Securities America, however, was in connection with the sales of two Provident Royalties LLC private placements. Like Medical Capital, Provident Royalties ran up against the SEC, which charged it with fraud in 2009.
“We are pleased to have put this matter behind us,” Securities America spokeswoman Janine Wertheim wrote in an e-mail. She added that there was no Finra action pending against Securities America regarding its approval of Medical Capital products.
Using dozens of independent broker-dealers to market nine private-placement offerings, Medical Capital raised $2.2 billion from 20,000 investors over an eight-year period. Between 2006 and 2009, Provident Royalties raised $485 million from over 7,700 investors, selling through 50 broker-dealers.
The firm's sold the high-risk securities “without having a reasonable basis,” Finra said in its statement. Finra said it found that broker-dealers did not have adequate supervisory systems in place to identify and understand the risks of the private placements, and, as a result, many of the broker-dealers did not conduct adequate due diligence on the products.
Finra's actions date back several months.
It was the second time this year Finra has come down hard on broker-dealers over the failed private placements and private real estate deals issued by DBSI Inc., a bankrupt syndicator of tenant-in-common exchanges, or TICs. In April, Finra said it had fined and sanctioned two firms and seven individuals over sales of private placements, with the largest being $700,000 in restitution by Workman Securities Inc., which has since shut down.
In today's statement, Finra said it ordered several other firms to pay hundreds of thousands of dollars in restitution to clients. Those firms included Investors Capital Corp., which is liable for restitution of $400,000 in connection to sales of Provident private placements. “We are pleased to have put this matter behind us and to have fully cooperated with Finra in achieving a settlement that returns money to Provident investors,” said John G. Cataldo, Investors Capital's chief compliance officer and counsel.
Also on Finra's list: Garden State Securities Inc., ordered to return $300,000 in in connection to the sale of a Medical Capital private placement; Capital Financial Services, which is liable for $200,000 in restitution; National Securities Corp, ordered to pay $175,000 in restitution; Equity Services Inc., ordered to pay $164,000 in restitution in connection with a DBSI private placement and also fined $50,000; and Newbridge Securities Corp. which was fined $25,000.
“We paid that $200,000 in restitution last year,” said Capital Financial's president, John Carlson.
Tom Casolaro, CEO of Newbridge Securities, did not return a call seeking comment.
Finra also levied fines against the firms and several of their executives. Kevin DeRosa, co-owner of Garden State Securities, was suspended for 20 days and fined $25,000. National Securities' director of alternative investments and director of syndications, Matthew Portes, was fined $10,000 and suspended as a principal for six months.
Mr. DeRosa did not return a phone call seeking comment. Mark Goldwasser, CEO of National Securities, also did not return a phone call seeking comment.
At Equity Services, Stephen Englese, senior vice president for securities operations, was suspended for 30 days and fined $10,000. A registered representative, Anthony Campagna, also was suspended for 30 days and fined $25,000. Lance Reihl, the firm's CEO, did not return a phone call seeking comment.
The former chief compliance officer of Newbridge, Robin Bush, was fined $15,000 and suspended for six months as a principal.
Finra also sanctioned other individuals who did not work for those firms.
One rep, Michael Shaw, was barred from the industry in connection with the sale of a DBSI private placement, as well as several others. According to Finra, Mr. Shaw, who earned about $57,000 in commissions on the products, falsified customer account documents, increasing their net worth and changing their risk profiles.
Mr. Shaw, who was affiliated with VSR Financial Services Inc., neither admitted nor denied Finra's findings, according to his profile on BrokerCheck.
