FINRA Sanctions Broker-Dealers and Individuals for Selling Interests in Troubled Private Placements

The law firm of Levin Papantonio is currently investigating and accepting claims on behalf of investors who suffered losses as clients of eight broker-dealers and ten individuals recently sanctioned by FINRA.  Provident Royalties, LLC, Medical Capital Holdings, Inc. and DBSI, Inc. are three of the firms FINRA imposed sanctions against for selling interests in multiple high-risk private placements, without having reasonable grounds for recommending the securities. The private placements failed, hitting investors with significant losses.

FINRA is continuing its crackdown on broker-dealers for the alleged sales of private placements.  Last Tuesday, the regulator levied sanctions against eight firms and ten individuals, amounting to a total of $3.2 million in restitution to investors. The day before, Investment News reported the leading sanction, placed on Next Financial Group Inc., totaling  $2 million in investor restitutions.

The list of firms sanctioned by FINRA on Tuesday includes:

• Investors Capital Corp., which now owes investors $400,000 in restitution for the sale of Provident Royalties private placements
   
• Capital Financial Services with $200,000 in investor restitution
   
• Equity Services with $164,000 owed to investors in connection with a DBSI private placement
   
• Garden State Securities, Inc. with $300,000 in investor restitution related to the sale of a MedCap private placement
   
• National Securities Corp. with $175,000 in restitutions
   
• Newbridge Securities Corp. with $25,000 in fines

The seven other firms are all independent broker-dealers as well, and include the chief seller of certain issues of private placements—notes issued by Medical Capital Holdings Inc., a company that the SEC actually charged with fraud in 2009.  This time, however, the SEC’s censure and $250,000 fine against Securities America was connected to sales of two Provident Royalties LLC offerings, a different series of private placements.

In its letter of acceptance, waiver and consent, FINRA alleges that Next Financial sold $20 million in three Provident Royalties LLC (which the SEC charged in 2009 for fraud) private placements between July 2008 and January 2009.  FINRA claims that Next Financial lacked due diligence during that time period.  The letter of acceptance, finalized in October, stated, “Despite the fact that Next received a specific fee related to the due diligence that was purportedly performed in connection with each offering, beyond reviewing the private-placement memorandum for the offerings, [Steven Nelson, vice president of investment products and services] did not perform adequate due diligence on the [Provident] offerings.”

From 2006 to 2009, Provident Royalties accrued $485 million from 7,700 investors by selling through 50 different broker-dealers.  Brokers with Securities America sold a total of $700 million in MedCap notes.  During an eight-year span, Medical Capital Holdings amassed $2.2 billion from 20,000 investors by marketing nine private-placement offerings using dozens of independent broker-dealers.

According to FINRA, the broker-dealers did not have acceptable supervisory systems in practice, making it difficult to identify and understand the risks associated with private placements.  Because of this, broker-dealers did not perform due diligence on products.

If you have suffered losses as a result of purchasing private placements offered by Provident Royalties, LLC, Medical Capital Holdings, Inc., or DBSI, Inc. from these firms and individuals, you may be entitled to recover your investment losses.  Call the securities attorneys at Levin Papantonio or complete a free claim evaluation online today to learn more.