News that two firms have been charged with fraud related to large private-securities deals could lead to a serious headache for many midsize to large independent broker-dealers whose financial advisers sold the products to wealthy investors.
On July 16, the Securities and Exchange Commission charged Medical Capital Holdings Inc. of Tustin, Calif., with fraud in the sale of $77 million of private securities in the form of notes. The same day, the Financial Industry Regulatory Author-ity Inc. of New York and Washington sent a sweep letter to broker-dealers looking for details into the sale of the product.
On July 7, the SEC charged Provident Asset Management LLC of Dallas with operating a fraud and a Ponzi scheme in the sale of $485 million of preferred stock and limited partnership offerings in oil and gas deals.
According to brokerage executives with the firms, industry sources and documentation, the firms that sold either one or both of the investments include American Portfolios Financial Services Inc., Capwest Securities Inc., GunnAllen Financial Inc., J.P. Turner & Co. LLC, National Securities Corp., Next Financial Group Inc. and Securities America Inc.
The outcome for broker-dealers whose advisers sold private securities and face fraud charges is unknown. They could face investor lawsuits or arbitration claims, and securities regulators may increase scrutiny of the firms.
In addition, executives and industry observers said that they wonder whether errors and omission insurance will cover any of the potentially millions of dollars in losses from the soured investments.
for more, see Investment News,
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