Weeks away from a face-off with securities regulators in Massachusetts, Securities America Inc. has tapped Jim Nagengast to be its new chief executive. Mr. Nagengast, the firm's president since 2008, replaces Steve McWhorter, who announced his retirement this year.
With a recent string of broker-dealers falling by the wayside or leaving the business, Mr. Nagengast said he feels “optimistic” about the future, adding that the industry
consolidation will create a “real opportunity” for Securities America.
“Numerous broker-dealers are going to be faced with the question” of whether to continue or to exit the business, he said.
Mr. Nagengast already has his plate full with problems created by Securities America reps' and advisers' selling Medical Capital private placements from 2003 to 2008. In January, the Massachusetts Securities Division sued the firm, alleging that it misled investors. Four hundred Securities America reps and advisers sold almost $700 million notes issued by Medical Capital Holdings Inc., which was charged with fraud by the Securities and Exchange Commission last summer.
The lawsuit alleges that Securities America failed to reveal pertinent information to investors about high-risk notes issued by Medical Capital. In total, Medical Capital issued $2.2. billion in notes, and about half of those are in default. Dozens of broker-dealers sold the notes, but Securities America, which has more than 1,900 reps and advisers, is the largest broker-dealer to have sold them.
An administrative hearing at the Massachusetts Securities Division is scheduled to be held for four days beginning August 30.
Mr. Nagengast said the firm does not know how the hearing is going to progress. “We feel strongly we did our due diligence — a significant amount — before approving” the first five Medical Capital series of notes.
In the lawsuit, Massachusetts cited e-mails from Mr. Nagengast from 2005 that the firm should stop selling the product until it received audited financials from Medical Capital.
According to the complaint, Mr. Nagengast wrote in an e-mail: “We simply have to tell [Medical Capital] that if they don't have financials by [a specified] date, we will stop distributing the product on that date. Then they can decide if it's worth spending $50,000 to have [the audit] done. If they won't spend the money, that should give us concern.”
When asked to comment on that e-mail, Mr. Nagengast said: “We conducted industry-leading due diligence and never detected any indication of fraud.”
Securities America “ignored its president's recommendation and continued selling hundreds of millions of dollars of [Medical Capital] notes without the audited financials' ever being conducted on any Medical Capital entities,” the lawsuit alleges.
The Massachusetts lawsuit is seeking restitution for investors as well as a fine against Securities America.
