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Univ. of Toledo College of Law

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Tuesday, November 29, 2011

FINRA Fines 8 Firms for Selling Interests in Troubled Private Placements

FINRA sanctioned eight firms and 10 individuals and ordered restitution totaling more than $3.2 million, for selling interests in private placement offerings without having a reasonable basis for recommending the securities. The firms and individuals sold interests in several high-risk private placements, including those issued by Provident Royalties, LLC, Medical Capital Holdings, Inc. and DBSI, Inc., which ultimately failed, causing significant investor losses. FINRA previously sanctioned two firms and seven individuals in April 2011 for selling interests in private placements without conducting a reasonable investigation.

FINRA imposed sanctions against the following firms and individuals for failing to conduct a reasonable investigation or for failing to enforce procedures with respect to the sale of private placements offered by Provident Royalties, LLC, Medical Capital Holdings, Inc. or DBSI, Inc.:

  • NEXT Financial Group, Inc. of Houston, TX, was ordered to pay $2 million in restitution to affected customers and fined $50,000; Steven Lynn Nelson, the firm's Vice President for Investment Products and Services, was suspended in any principal capacity for six months and fined $10,000 in connection with the sale of three Provident Royalties private placements.
  • Investors Capital Corporation of Lynnfield, MA, was ordered to pay roughly $400,000 in restitution to affected customers in connection with the sale of two Provident Royalties private placements and was also sanctioned in connection with an additional offering issued by CIP Leveraged Fund Advisors.
  • Garden State Securities, Inc. of Red Bank, NJ, and Kevin John DeRosa, a co-owner of the firm, were ordered to pay $300,000 in restitution on a joint-and-several basis to affected customers in connection with the sale of a Medical Capital private placement. DeRosa was also suspended for 20 business days in any capacity and for an additional two months in any principal capacity, and fined $25,000. Vincent Michael Bruno, the firm's Chief Compliance Officer at the time, was suspended for one month in a principal capacity and fined $10,000.
  • Capital Financial Services of Minot, ND, was ordered to pay $200,000 in restitution to affected customers, and Brian W. Boppre, a former principal, was suspended in any principal capacity for six months and fined $10,000 in connection with the sale of three Provident Royalties private placements and a Medical Capital private placement.
  • National Securities Corporation of Seattle, WA, was ordered to pay $175,000 in restitution to affected customers, and Matthew G. Portes, Director of Alternative Investments/Director of Syndications, was suspended in any principal capacity for six months and fined $10,000 in connection with the sale of three Provident Royalties private placements and a Medical Capital private placement.
  • Equity Services, Inc. of Montpelier, VT, was censured, fined $50,000 and ordered to pay nearly $164,000 in restitution in connection with the sale of a private placement DBSI, Inc. issued; Stephen Anthony Englese, Senior Vice President for Securities Operations, was suspended from association with any FINRA-regulated firm in any capacity for 30 business days and fined $10,000; and Anthony Paul Campagna, a registered representative, was suspended from association with any FINRA-regulated firm in any capacity for 30 business days and fined $25,000.
  • Securities America, Inc. of La Vista, NE, was censured and fined $250,000 in connection with the sale of two Provident Royalties private placements.
  • Newbridge Securities Corporation of Fort Lauderdale, FL, was fined $25,000; Robin Fran Bush, the former Chief Compliance Officer of Newbridge, was suspended in any principal capacity for six months and fined $15,000 in connection with the sale of four DBSI private placements and a Medical Capital private placement.
  • Leroy H. Paris II, former President and Chief Executive Officer for the now-defunct Meadowbrook Securities, LLC (fka Investlinc Securities, LLC), of Jackson, MS, was suspended for six months in any principal capacity and fined $10,000 in connection with the sale of two Provident Royalties private placements and a Medical Capital private placement.
  • Michael D. Shaw, formerly associated with VSR Financial Services, Inc. of Baton Rouge, LA, was barred from the industry in connection with the sale of a private placement offered by DBSI, Inc. and several additional private placements offered by other issuers. In addition, Shaw falsified customer account documents.

From 2001 through 2009, Medical Capital Holdings, a medical receivables financing company based in Anaheim, CA, raised approximately $2.2 billion from over 20,000 investors through nine private placement offerings of promissory notes. Medical Capital made interest and principal payments on its promissory notes until July 2008, when it began experiencing liquidity problems and stopped making payments on notes sold in two of its earlier offerings. Nevertheless, Medical Capital proceeded with its last offering, Medical Provider Funding Corporation VI, offered through an August 2008 private placement memorandum. In July 2009, the SEC filed a civil injunctive action in federal district court in which it sought, and was granted, a preliminary injunction to stop all Medical Capital sales. The court appointed a receiver to gather and conduct an inventory of Medical Capital's remaining assets. The SEC action is pending.

From September 2006 through January 2009, Provident Asset Management, LLC, marketed and sold preferred stock and limited partnership interests in a series of 23 private placements offered by an affiliated issuer, Provident Royalties. The Provident offerings were sold to customers through more than 50 retail broker-dealers nationwide and raised approximately $485 million from over 7,700 investors. Although a portion of the proceeds of Provident Royalties' offerings was used for the acquisition and development of oil and gas exploration and development activities, millions of dollars of investors' funds were transferred from the later offerings' bank accounts to the Provident operating account in the form of undisclosed and undocumented loans, and were used to pay dividends and returns of capital to investors in the earlier offerings, without informing investors of that fact. In July 2009, the SEC filed a civil injunctive action in the Northern District of Texas naming Provident and others for violations of the federal securities laws. The Court granted the SEC's request for a temporary restraining order, an emergency asset freeze and appointment of a receiver to take control of Provident and preserve the assets for the benefit of the defrauded investors. The SEC action is pending. On March 18, 2010, FINRA announced that it had expelled Provident Asset Management, LLC, a Dallas-based broker-dealer, for marketing a series of fraudulent private placements offered by its affiliate, Provident Royalties, LLC.

 

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