According to the Montana Order, Securities America was the placement agent for the sale of Medical Capital and sold nearly 40% of the total Medical Capital notes nationwide since 2003, amounting to a total of $697 million. The Order alleges that due diligence analyst reports were issued each year warning Securities America about a number of material risks concerning the Medical Capital investments and “strongly recommended” that investors be provided with a disclosure of those risks. According to the Order, “Securities America concealed these risks” and “withheld material information regarding heightened risks associated with the [Medical Capital] promissory notes” from its brokers and clients. These risks included Medical Capital’s lack of audited financials.

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All in-state members of the Florida Bar were invited to participate in the selection of the Legal Elite. These lawyers were asked to name attorneys whom they hold in the highest regard or would recommend to others.

Each lawyer was given a score based on the number of votes received: one point for votes from within their firm or three points for votes from outside their firm. The list of top vote recipients was further examined using membership status and histories provided by the Florida Bar. A panel of previous Legal Elite winners, representing different practice areas in cities across the state, reviewed the selection process and the list of finalists.

For more information, the entire report is available at: http://www.floridatrend.com/law_elite.asp

The financial product at issue is a synthetic collateralized debt obligation (CDO) called ABACUS 2007-ACI, which was tied to the performance of subprime residential mortgage-backed securities. ABACUS was structured and marketed by Goldman Sachs.

According to the SEC’s complaint, Goldman Sachs failed to disclose material information about the CDO, specifically that a major hedge fund had taken a short position against the CDO (meaning it gained to benefit if the underlying mortgages defaulted) and that this same hedge fund was also involved in the portfolio selection for the CDO. In other words, Goldman Sachs did not disclose the hedge fund manager’s role in the portfolio selection process or its conflicted interest. To the contrary, Goldman Sachs told investors in ABACUS marketing materials that the CDO would be selected by an independent manager.

According to the SEC, investors in the ABACUS mortgage securities are alleged to have lost more than $1 billion.

Curtis Lyman, a Hightower broker based out of its Palm Beach Gardens, Florida branch, sold investors millions of dollars in promissory notes issued by Banyon, LLC. The investments were described as low-risk, high-return investments in legal settlements. To the contrary, these legal settlements were fabricated by notorious Ponzi schemer and disbarred Florida attorney Scott Rothstein, who has plead guilty to the largest investment fraud in South Florida’s history. In November 2009, the Banyon notes went into default after Rothstein’s Ponzi scheme imploded.

Investors allege that Lyman and Hightower breached their fiduciary duties by recommending the Banyon investments, and were negligent in their due diligence of the investments, despite glaring red flags. Banyon was controlled by George Levin, who was previously involved with a company which pled guilty to felony mail fraud and subsequently involved with another company which engaged in fraudulent transfers. In addition, Banyon’s Chief Financial Officer, Frank Preve, was convicted of felony bank embezzlement in the 1980’s.

Both private placements and variable annuities products are high commission products, which raises concern whether brokers are recommending these products in the best interests of their clients, or whether the brokers are putting ahead their own financial interests. Provident private placements paid commissions of approximately 6% to 10%, which significantly exceeds commissions earned on more traditional investment products.

Ms. Holzer is currently a registered representative of Wedbush Morgan Securities, Inc. and Sequoia Securities Corp. According to her website, she has appeared on several network television shows such as the Today Show, NBC, CNN, CNBC, Bloomberg and has authored numerous retirement planning and investment books. However, it is not mentioned on Ms. Holzer’s website that her employment record reflects 42 settled customer disputes, violations of firm policy at other brokerage firms and regulatory suspension and fines based on her misconduct (according to FINRA BrokerCheck).

At the same time, FINRA released an Investor Alert, Reverse Convertibles - Complex Investment Vehicles, to educate retail investors about how these products work, what risks they involve and what factors to consider before investing in an RCN. FINRA also issued Regulatory Notice 10-09, reminding firms of their sales practice obligations when recommending or selling RCNs to retail investors.

An RCN is a structured product that typically consists of a high-yield, short-term note of an issuer and effectively a put option that is linked to the performance of an unrelated, or "linked," asset - usually a single common stock, but sometimes a basket of stocks, an index or some other asset. As a general rule, upon maturity of an RCN, the investor will receive either his full principal investment or a predetermined number of shares of the linked equity (which may be worth less than the principal investment), depending on the performance of the linked equity. Generally speaking, the higher the coupon rate, the higher the expected volatility of the linked equity and the greater the likelihood of the investment resulting in payment of shares. Reverse convertibles not only come with the risks that fixed income products ordinarily carry, such as issuer default and inflation risk, but with additional risks of the underlying asset, which can depreciate or even become worthless. The initial investment for most RCNs is $1,000 per unit and most RCNs have maturity dates ranging from three months to one year.

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."

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 & Silver, LLP 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.

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.

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

Among other things, the FINRA notice reminds brokerage firms that in marketing PPNs, they must ensure their communications accurately and fairly explain how the securities operate. Promotional materials must disclose the level of principal protection offered, the credit-worthiness of the guarantor, the potential returns and pay-out structure, the investor’s ability to access funds and any costs or fees that might affect the return of principal. FINRA also advises representatives to perform an adequate suitability analysis based on the aforementioned aspects and components of the PPN.

The risks of PPN's were highlighted with the highly publicized Lehman Brothers' Principal Protected Notes. Brokers at UBS and other firms pitched these products as similar to buying a basket of stocks (such as the S&P 500) but with the added benefit of up to 100% principal protection if the market went down. However, Lehman Brothers declared bankruptcy in September 2008 and the notes became worthless.

Blum and Silver, LLP is actively involved in representing investors in PPN cases. For further information, please contact us.