Welcome to Financial Advisor IQ
Follow

Securities America to Pay Final $1M Over Ponzi Scheme

March 6, 2017

Securities America will pay back $1 million as the final part of a settlement it reached six years ago with Massachusetts regulators over sales of complex products, InvestmentNews writes.

The firm was ordered to pay $2.8 million in restitution in 2011 for selling promissory notes from Medical Capital Holdings to around 60 investors who the Massachusetts Securities Division deemed not sophisticated enough for such investments, according to the publication.

Medical Capital sold $1.7 billion of the private notes between 2003 and 2009 in a Ponzi scheme through “dozens” of independent broker-dealers, but Securities America advisors sold the bulk of them, raising $697 million for the firm, according to InvestmentNews.

In such placements, brokers get a 7% commission on the sales while broker-dealers receive a 1% fee for due diligence, supposedly to pay for reports evaluating the product, according to the publication. The notes were supposed to buy unpaid hospital and doctor bills that MedCap planned to later collect on at full price, but became worthless when the company went bankrupt in 2009, InvestmentNews writes.

The regulator had said in 2010 that Securities America, which had pulled in $26 million in fees from the notes, peddled the instruments at “dinner seminars” to up to 100 people at a time without ever asking them if they were sophisticated and accredited investors, according to the publication.

(Getty)

In addition, the regulator had said Securities America failed to disclose the risk involved and ignored due diligence from analysts recommending that investors be made aware of the risks, InvestmentNews writes.

A spokeswoman for Securities America didn’t return the publication’s request for comment.

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here.