April 1, 2010

Broker and Investment Author Bambi Holzer Facing Complaints for the Sale of Provident Shale Royalties Ponzi Scheme

Wedbush Morgan broker Bambi Holzer, whose employment background is filled with customer complaints for the sale of variable annuities, is now facing new complaints for the sale of Provident Shale Royalties private placement investments. Provident has been accused of being a Ponzi scheme by the Securities and Exchange Commission.

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).

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March 19, 2010

FINRA Expels Provident Asset Management and is Investigating Other Provident Selling Broker-Dealers

Today the Financial Industry Regulatory Authority (FINRA) announced that it has expelled Provident Asset Management, LLC, the affiliate broker-dealer of Provident Shale Royalties that marketed the fraudulent Ponzi scheme private placement investments.

FINRA proclaims it is actively investigating other broker-dealers involved in the sale of Provident and other private placement interests. FINRA is looking at firms’ compliance with suitability, supervision and advertising rules, as well as potential instances of fraud.

“While the private placement market is an important source of capital for many companies, the market is also one in which investors have been subject to unsuitable or abusive sales tactics," stated Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement.

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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.

November 30, 2009

Broker-Dealers Negligent in Their Due Diligence

Provident Royalties and Medical Capital securities were both offered under Regulation D of the Securities Act (or Reg D). Reg D contains exemptions from the registration requirements, allowing some issuer companies to offer and sell their securities without having to register the securities with the SEC.

Because securities offered under Reg D are not registered with the SEC, the transparency of these companies is limited. Broker-dealers must engage in the due diligence process to determine the validity of the offering, the issuer’s operations and suitability of the investments for their clients. Some broker-dealers engage an outside due diligence firm, whereas others perform their own due diligence, or a combination of both.

Many of the broker-dealers that sold Provident Royalties and Medical Capital securities “relied” on reports prepared by outside diligence firms and actually collected a due diligence fee for allegedly reviewing these reports. The problem with relying on such reports, however, are two-fold: 1) the firms preparing the reports are typically paid by the issuer, posing a conflict of interest and 2) the due diligence firms tend to produce only the most rudimentary information, providing only a brief overview of the issuers and their finances.

As reported September 27, 2009 by Investment News, an undisclosed broker-dealer hired and paid a firm to conduct additional due diligence on Medical Capital. Medical Capital “wasn’t very cooperative” and objected that the firm was going to show the report to more than one broker-dealer. This is not surprising, as any meaningful due diligence would have revealed red flags.

Blum Law Group is aggressively pursuing FINRA arbitration claims against broker-dealers for losses incurred based on recommendations to purchase Provident and/or Medical Capital.

If you were sold limited partnership interests and/or preferred stock in Provident or Medical Capital, contact our office.