More On Legal & Compliancefrom The Advisor's Professional Library
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Securities America, Inc., charged last year with improper sales of Medical Capital Notes in Massachusetts, has agreed to make full restitution to 63 Bay State investors, Secretary of the Commonwealth William Galvin said Monday.
The broker-dealer will pay $2.8 million in restitution within 10 days. A class action settlement in a Texas case is expected to result in repayment of 40% of investors losses to Massachusetts investors. Additionally, the receivership proceeding regarding Medical Capital Holdings is expected to result in recovery of another 10% of investor losses.
However, if the class action settlement is not approved, Securities America will pay an additional $2.24 million to the Massachusetts investors, with a further provision that if all those payments do not return investors 100% of their principal, Securities America will make up the difference. Those payments would be due 90 days after all appeals are ended in the class action and final receivership payments are made.
In January, 2010, Massachusetts charged Securities America, Inc. with selling about $697 million in promissory notes issued by Medical Capital Holdings, Inc. without telling investors they were high-risk investments. Medical Capital defaulted in August, 2008.
The notes were offered under a Regulation D exemption that allows sales to sophisticated and accredited investors, but the Massachusetts Securities Division charged that Securities America sales tactics ignored warnings of their own analysts and pitched the notes to unsophisticated investors.
In late April 2011, certain states and the North American Securities Administrators Association penned a letter to the judge overseeing a settlement in Texas, expressing their concerns with provisions contained within the Securities America lawsuit settlement there.
Galvin, Montana Commissioner of Securities and Insurance Jameson Walker and Tina Stavrou, counsel for the NASAA, claimed in the letter to U.S. District Judge Royal Furgeson that provisions in the settlement could have limited the ability of investors in other states to recoup losses.
“The purpose of this is letter is to raise the States and NASAA’s concern that certain provisions in the proposed partial settlement could be read to enjoin state regulatory proceedings, or limit the remedies available to investors in those proceedings,” the letter read, dated April 28.
Signers to the letter requested that any order from the court include provisions that specifically exclude state regulatory actions from the definition of “Released Claims.”
“The opportunity for investor confusion is ever present,” the letter read. “Already, Massachusetts investors have reached out to the Massachusetts Securities Division to discuss the implications of a possible class action settlement, and what effect their choice to participate may have on any remedies available pursuant to state authority.”