Posted On: January 28, 2010

Medical Capital Investor Alert: Massachusetts Securities Regulators Have Sued Securities America, Inc. for Securities Fraud

On Tuesday, the Commonwealth of Massachusetts filed a regulatory action against Securities America, Inc., accusing the brokerage firm of committing securities fraud on a massive scale. Specifically, Securities America sold approximately $697 million in promissory notes that were issued by entities wholly owned by Medical Capital Holdings, Inc. ("Medical Capital"). Unfortunately for Securities America's customers and other investors, the notes were part of an alleged Ponzi scheme, Medical Capital has defaulted on more than $1 billion of the notes that it issued. Securities America sold $358 million of those defaulted notes. The United States Securities and Exchange Commission ("SEC") sued Medical Capital several months ago, alleging that Medical Capital was a massive investment fraud, and Medical Capital now lies in an SEC receivership and is the subject of various injunctions and asset-freeze orders.

Similar to at least two nation-wide class-action lawsuits and dozens of FINRA securities arbitration claims that have been filed against Securities America, the Massachusetts complaint alleges that Securities America failed to conduct proper due diligence of Medical Capital or ignored red flags or which it was aware and made "material omissions and misleading statements" in the course of the sale of approximately $697 million of promissory notes to Medical Capital investors.

The Massachusetts complaint states "...all material risks and information regarding MC Notes were not disclosed to investors. These risks were known to [Securities America]. Year after year, the due diligence analyst, retained by [Securities America] to conduct a review of the various Medical Capital offerings, specifically requested and at many times pleaded that investors be informed of certain heightened risks."

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Posted On: January 26, 2010

Medical Capital Investors Still Owed $1.7 Billion

The court-appointed receiver for the Medical Capital fraud filed his sixth status report on January 11, 2010. As with the receiver’s earlier reports, this report outlines the various fraudulent aspects of the Medical Capital entities. The report also reveals the unchanging fact that investors are unlikely to recover much money from the receivership. Specifically, the report discloses that Medical Capital investors are owed $1.7 billion, which is far greater than the assets available to pay the investors. The receiver’s report further states that Medical Capital’s lending activities were unprofitable beginning with the creation of its first notes, which purportedly were backed by medical receivables.

The report also reveals that Medical Capital was paid administrative fees of more than of $323 million. In other words, more than $323 million of investors’ money went straight into Medical Capital’s coffers. The receiver also reported that: (a) none of the Medical Capital entities ever generated enough profit to pay investors’ principal and interest, and (b) just under $1 billion in loans and assets were transferred among various Medical Capital entities in order to make payments to earlier investors using new investors’ funds. This is a classic example of a Ponzi scheme.

Between the use of new investors’ money to pay earlier investors, “faking” receivables, and fraudulently marking up the value of aged receivables, it appears that investors have lost more than $1 billion and that investors are highly unlikely to recover much of that loss from the receivership. Blum Law Group continues to file FINRA arbitration claims against the brokerage firms that sold Medical Capital notes to investors. Please contact Blum & Silver if you would like to discuss claims that you may have against the brokerage firm that sold Medical Capital investments to you.

Posted On: January 25, 2010

Increased FINRA Arbitration in 2009

According to the Financial Industry Regulatory Authority (FINRA), 7,137 arbitration cases were filed by investors last year, up 43 percent from 2008 and more than doubling the number of cases filed in 2007.

The volume of cases increased in every category, with the exception of online trading. The increased type of controversies include margin calls, churning, unauthorized trading, failure to supervise, negligence, omission of facts, breach of contract, breach of fiduciary duty, unsuitability and misrepresentation. The largest number of cases involved breach of fiduciary duty, as cases filed soared 48 percent to 4,206 last year. Misrepresentation and negligence claims were second and third on the list, cited in 3,408 (70% increase) and 3,405 (113% increase) cases, respectively.

Cases involving mutual funds and common stock were the most numerous, with the former being the subject of 1,556 claims last year, up 45% from 2008. Common stock claims increased by 77% from the previous year, up to 1,367 claims in 2009.

Although FINRA arbitration filings have vastly increased, it is noteworthy that the turnaround time for such cases in 2009 decreased by 12%. This means that investors are seeing resolutions to their cases at a faster rate.

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Posted On: January 13, 2010

2009: "The Year of the Ponzi Scheme"

According to a recent Associated Press (AP) analysis, more than 150 Ponzi schemes collapsed in 2009, compared with about 40 in 2008. In other words, nearly four times as many Ponzi schemes imploded in 2009 than in 2008. The AP’s analysis included criminal cases at all U.S. attorney’s offices and the FBI, as well as criminal and civil actions taken by state prosecutors and regulators at both the federal and state level.

In 2009, tens of thousands of investors lost more than $16.5 billion in these investment scams, including the life savings of many people.

The Securities and Exchange Commission describes a Ponzi Scheme as a type of illegal pyramid scheme named for Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. Money from new investors is used to pay off earlier investors until the whole scheme collapses. Often there is no "investment" occurring — money is simply being shifted from one person to another, with the initiator of the investment scheme skimming money off the top.

The following statistics from the AP highlight the proliferation of such investment scams:

—The FBI opened more than 2,100 securities fraud investigations in 2009, up from 1,750 in 2008. The FBI also had 651 agents working in 2009 on high-yield investment fraud cases, which include Ponzis, compared with 429 last year.

—The SEC this year issued 82 percent more restraining orders against Ponzi schemes and other securities fraud cases this year than in 2008, and it opened about 6 percent more investigations. Ponzi scheme investigations now make up 21 percent of the SEC's enforcement workload, compared with 17 percent in 2008 and 9 percent in 2005.

—The Commodity Futures Trading Commission filed 31 civil actions in Ponzi cases this year, more than twice the 2008 amount.

Experts attribute the recession responsible for the collapse of so many of the Ponzi schemes, as well as heightened awareness and regulatory scrutiny that resulted from the infamous Madoff scandal.

Blum Law Group routinely represents investors in recovering Ponzi scheme losses, including investors who lost money in Medical Capital Holdings, Provident Royalties, DBSI and many other investments.