The Massachusetts Securities Division today filed a complaint against Securities America Inc., charging that the broker-dealer and subsidiary of
Ameriprise Financial Inc. misled investors when it sold them private-placement securities.
According to the complaint, the broker-dealer made “material omissions and misleading statements” when it sold $697 million in promissory notes issued by Medical Capital Holdings Inc. as private-placement securities. The complaint further alleges that as a placement agent, Securities America ignored recommendations by due-diligence analysts to share financial information, including Medical Capital's lack of audited financials, with investors.
In 2005, Securities America president and chief operating officer Jim Nagenast wrote in an e-mail to Thomas Cross, chairman of the company's due-diligence committee and head of sales, that he had concerns about this lack of audited financials, the complaint said. “At this point, there is no excuse for not having audited financials … it is a cost they simply have to bear to offer product through our channel,” the e-mail stated, according to the complaint.
From 2005 to 2007, Securities America's due-diligence team discovered a number of red flags about Medical Capital Holdings, including that the firm invested up to $50 million in equity securities of all types, and made mortgage loans to companies within the health care industry but “outside MCC core expertise.” The complaint also alleges that Medical Capital failed properly to disclose mortgage financing, conflicts of interest as a dual lender and commercial-real-estate risks.
The complaint was filed just four days after Securities America chief executive Steve McWhorter announced he will retire this spring after 22 years at the helm. Mr. Nagenast is a contender for the CEO spot.
Mr. McWhorter's resignation had nothing to do with the complaint, said Janine Wertheim, chief marketing officer and president of Securities America Advisors Inc. “We didn't even know about this,” she said.
Securities America denies the allegations in the complaint.
“Securities America conducted considerable due diligence and met all industry standards for such due diligence,” according to an e-mailed statement from the firm.
Fifty or more other broker-dealers independently conducted due diligence, but none detected the alleged fraud committed by Medical Capital, and approved and sold the Medical Capital notes, the firm noted. Each private-placement transaction of this type is reviewed on an individual basis to determine accredited investor status and requires evidence of eligibility to purchase the product, the firm said in the statement.
