A former top executive of Securities America feared “a panicked run on the bank” from clients who invested in private securities of Medical Capital Holdings Inc., which the Securities and Exchange Commission sued last month for fraud.
Medical Capital is a receivables firm based in Anaheim, Calif.
Alarm bells started ringing last summer at Securities America over the fiscal health of Medical Capital private placements.
According to an e-mail from July 2008 written by a Securities America Inc. executive to a Medical Capital official, one client of the La Vista, Neb.-based independent broker-dealer was having difficulty redeeming shares of Medical Capital.
“This is beyond alarming for us,” wrote W. Thomas Cross, who no longer works for the firm but was then senior vice president of the products distribution group.
“Please see if you can find out what is going on and what we can do on behalf of our clients. I honestly fear a panicked run on the bank from Cedar Brook [Financial Partners LLC] if what they seem to be saying is true,” he wrote.
Cedar Brook of Cleveland is affiliated with Securities America.
The amount of exposure Securities America clients had to the Medical Capital deals wasn't clear in the e-mail.
The reason for Mr. Cross' leaving Securities America is also unclear.
The e-mail was part of a recent federal court filing by the SEC in the matter.
Last month, the SEC sued Medical Capital and chief executive Sidney M. Field and president and chief operating officer Joseph “Joey” Lampariello, alleging that they had defrauded investors. The SEC said that the two men had improperly diverted $18.5 million of investors' money and failed to tell them about several Medical Capital defaults.
Medical Capital buys receivables from hospitals and health care providers at a discount. Investors profit when the bills are paid.
In total, Medical Capital raised $2.2 billion from 20,000 investors to buy hospital receivables and other investments.
A number of independent broker-dealers had approved their brokers to sell Medical Capital offerings, and the
Financial Industry Regulatory Authority Inc. of New York and Washington began a “sweep” of broker-dealers at the time, looking for information about the transactions.
Janine Wertheim, a spokeswoman for Securities America, did not respond to phone and e-mail messages seeking comment.
Medical Capital officials couldn't be reached.
E-mail Bruce Kelly at [email protected].
