Securities America Inc. was tagged last month with a lawsuit from Massachusetts regulators alleging that the firm misled investors who were sold high-risk private placements.
Now coming to light are the names of a handful of the firm's leading advisers who have been sued in arbitration complaints stemming from those deals.
While these kinds of high-profile suits generate bad press for firms, industry observers said that it can be traumatic — and potentially career-threatening — for brokers and advisers to face such intense litigation from clients.
Indeed, the saga of private placements that have gone bust has dragged on for months, with the prospect of years of potential litigation for those involved.
According to records with the
Financial Industry Regulatory Authority Inc., those advisers include William Glubiak, who was named in December in a $7.7 million complaint from about 24 households of investors. The suits claim that Mr. Glubiak sold clients investments in Medical Capital Holdings Inc. and also alleges unsuitability, misrepresentation and omission of material facts, according to the Finra records.
Mr. Glubiak, who is the founding principal of Cedar Brook Financial Partners LLC, which has more than 50 financial professionals, said that he and his firm had “no knowledge of any fraud” regarding Medical Capital.
“We are very strong in our opinion we didn't” do anything wrong, he said.
Paula Dorion-Gray, another top adviser for Securities America, also has been sued over private placements gone bad. Ms. Dorion-Gray was named in a $254,000 complaint in November alleging she recommended alternative investments in Medical Capital and another private placement, Provident Royalties LLC, according to Finra records.
In 2007, Ms. Dorion-Gray was named one of America's top 100 independent advisers by Registered Rep magazine.
Ms. Dorion-Gray did not respond to a phone call seeking comment for this story.
According to the Massachusetts Securities Division's complaint, 400 Securities America advisers allegedly sold $700 million of the private placements, about half of which are in default.
In separate actions, the Securities and Exchange Commission last summer charged both Medical Capital Holdings and Provident Royalties with fraud.
The Massachusetts suit alleges that Securities America failed to reveal pertinent information to investors about high-risk notes issued by Medical Capital.
Officials at Securities America do not see it that way.
“The Medical Capital situation is highly unfortunate for investors, advisers and broker-dealers alike, all of whom were intentionally defrauded by the principals at Medical Capital,” Securities America spokeswoman Janine Wertheim said.
“Securities America performed extensive, industry-standard due diligence of Medical Capital, and every person that purchased Medical Capital through SA was an accredited investor, according to their financial suitability documents, and attested to that as well as to their understanding of the risks.”
She added that the firm has guidelines designed to limit the percentage of an investor's overall net worth that should be invested in private placements of this type. “We plan to vigorously defend our firm and our advisers that sold Medical Capital,” she said.
For his part, Mr. Glubiak believes that the legal system will work out the Medical Capital complaints and the ultimate culpability.
“No one feels worse than us that a product like this” was in the marketplace, he said.
E-mail Bruce Kelly at [email protected].
