Montana’s Securities Commissioner has filed a legal action against broker-dealer Securities America, the Ameriprise Financial subsidiary, 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 an August 4 complaint.
The Montana action against Securities America charges that the three of the firm’s salesperson’s sold “MCHI promissory notes” indicating that they were “secured notes” and that they were “safe,” for investors. The action seeks “fines, restitution with interest and permanently prohibit Respondents from violating the Act.”
SEC Charged MCHI With Fraud
Earlier, on July 16, 2009, the SEC 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 Commission 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.
The SEC further charged that the MCHI “defendants defrauded investors by misrepresenting in MP VI’s offering documents that none of the SPCs affiliated with MP VI had defaulted on or been late in making payments of principal and/or interest to their respective investors.” But, the SEC stated, “two MP VI-affiliated SPCs began defaulting on interest and/or principal payments in the same month that MP VI began its offering,” and later, “two other MP VI-affiliated SPCs have defaulted or been late in making interest payments.”
Securities America and seven executives were named in the Montana complaint: James D. Nagengast, president, CFO and COO; Steven F. McWhorter, chairman and CEO; Walter Thomas Cross, senior VP and director of product distribution; Kevin Joseph Miller, VP, chief compliance officer and deputy counsel; Debra A. Hansen, first vice president of marketing; Lamar Stuart Jones Jr., VP of risk management; and Pamela Janine Wertheim, VP and chief marketing officer.