More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
A dispute against Omaha-based independent BD Securities America Inc., registered rep Randall Ray Talbott and the now-defunct Medical Capital Holdings has been resolved with an award of more than $1 million to a claimant who accused the parties of breach of fiduciary duty and financial elder abuse.
On Dec. 31 in Los Angeles, an arbitration panel for the Financial Industry Regulatory Authority (FINRA) signed off on the dispute resolution that said Securities America and Talbott are liable to the claimant, Josephine Wayman, for compensatory damages of $734,118. In addition, Securities America must pay the claimant punitive damages of $250,000.
According to the panel’s case summary, Wayman charged the respondents with seven actions, including breach of fiduciary duty, violation of industry rules, fraud and deceit, negligence and financial elder abuse. The causes of action related to her investments in the promissory notes of Medical Capital, a former California lender.
Executives at Securities America, an Ameriprise Financial subsidiary, were not pleased with the decision.
“The award was based on the specific facts of this investor's case, and we disagree with the outcome. Securities America does not believe it acted inappropriately in the sale of these investments,“ said company spokesperson Janine Wertheim.
In August 2010, Montana's Securities Commissioner filed a legal action against IBD Securities America for allegedly withholding “material information regarding heightened risks” of the sale of private placement promissory notes of Medical Capital Holdings, which are now in default, to investors in Montana. Corporate officers and executives as well as three salespersons were named in the August 4 complaint.
The Montana action against Securities America charges that the three of the firm's reps sold "MCHI promissory notes" indicating that they were "secured notes" and that they were "safe," for investors. The action sought "fines, restitution with interest and permanently prohibit Respondents from violating the Act."
Earlier, on July 16, 2009, the Securities and Exchange Commission had charged MCHI with civil fraud, halting "a $77 million offering fraud perpetrated by defendants Medical Capital Holdings, Inc. ("MCHI"), Medical Capital Corporation ("MCC"), Medical Provider Funding Corporation VI ("MP VI"), Sidney M. Field, and Joseph J. Lampariello."
The SEC said in its announcement of the charges against MCHI that through special purpose corporations (SPCs), "MCHI, MCC, Fields, and Lampariello have raised over $2.2 billion through offerings of notes in MP VI and five other similarly structured SPCs." The SEC alleged then that MCHI defendants "defrauded investors by misappropriating approximately $18.5 million of the $76.9 million raised through the sale of MP VI notes to pay administrative fees to MCC," when it had stated in offering documents that those fees were not to be paid out of the money raised in the sale of the notes.
Also, the Enforcement Section of the Massachusetts Securities Division filed a complaint against Securities America related to the sale of the same type of MCHI notes in Massachusetts. In a Jan. 26, 2010 complaint, Massachusetts alleged "material omissions and misleading statements" in the sale of the MCHI notes to investors in that state.
Read more about the case at AdvisorOne.com.