A Colorado broker has lost his securities license for violating state and federal securities laws in the sale of Medical Capital Holdings Inc. private placements.
According to a statement today from the office of Colorado Securities Commissioner Fred Joseph, the broker, John B. Guyette, violated the Colorado Securities Act by offering and selling Medical Provider Funding Corp. private notes, which were marketed by Medical Capital.
Specifically, Colorado regulators alleged that Mr. Guyette sold those private placements to a number of investors with whom he did not have a substantial prior relationship. That, attorneys said, put Mr. Guyette in violation of Regulation D, the federal securities law under which private placements are commonly offered.
“I surrendered my license; I did not lose it,” said Mr. Guyette, who said he invested $205,000 of his own money in Medical Capital notes. “I voluntarily resigned rather than take this to the next level [court]. I decided not to fight this, and retired,” he said.
In agreeing to the order, Mr. Guyette neither admitted nor denied the allegation, the statement said.
Regulators have been increasing their scrutiny of sales of private placements over the past couple of years. The Securities and Exchange Commission last summer charged Medical Capital with fraud, and numerous independent broker-dealers and their reps have since been caught up in the scandal. Medical Capital sold $2.2 billion in private notes but allegedly operated like a Ponzi scheme.
Mr. Guyette is also no longer registered with the
Financial Industry Regulatory Authority Inc. According to his record with Finra's BrokerCheck system, Finra began an investigation of Mr. Guyette in February and has three customer complaints over the sale of Medical Capital notes and private placements. The alleged damages of those three complaints are $650,000.
Mr. Guyette spent the lengthiest period of his career — from 1997 to 2009 —affiliated with Community Bankers Securities LLC. In February, that firm stopped being registered with Finra. Nicholas Skaltsounis, Community Banker's former CEO, did not return a call to comment.
Mr. Guyette said he is not sure how much Medical Capital he sold, but he began offering the product in 2003 and last sold it in 2008. The Finra investigation focused on Community Bankers and claims made by Medical Capital that it never lost money, he said.
When the SEC created Reg D offerings in 1982, the intention was to simplify capital raising for small-business owners. Reg D contains exemptions from federal registration for limited offerings of securities.
Critics of the offerings say the private deals are expensive, lack liquidity and carry risk — all while being lightly regulated.
“Our investigation into the offer and sale of Medical Capital securities by licensed stockbrokers is ongoing,” Mr. Joseph said in a statement. “This was a ‘private offering' under federal law, so-called Regulation D, meaning the [Colorado Securities Division] was pre-empted from oversight of the offering under federal law.”
“But licensed stockbrokers in Colorado were still under a duty to properly research this offering and ensure that the investments were suitable for each investor,” he said.
