After previously announcing that it sanctioned two firms and seven individuals for selling interests in private placements, the Financial Industry Regulatory Authority (FINRA) has added eight more firms and 10 more individuals to its investigation. The firms and individuals sold interests in high-risk private placements such as Medical Capital Holdings without conducting a reasonable investigation, therefore having no reasonable basis to recommend the investments. FINRA has ordered the firms to pay $3.2 million in restitution due to significant investor losses.

Between 2001 and 2009, Medical Capital Holdings, a medical receivables financing company based in Anaheim, CA, raised nearly $2.2 billion from over 20,000 investors through nine promissory note private placement offerings. Interest and principal payments were made on the promissory notes until July 2008, when Medical Capital began experiencing liquidity problems and stopped making payments on notes sold in two of its earlier offerings. Still, Medical Capital continued with its last offering, Medical Provider Funding Corporation VI, offered in an August 2008 private placement memorandum. As a result, the SEC filed a civil injunctive action in federal court in which it sought, and was granted, a preliminary injunction to stop Medical Capital sales.

FINRA's findings revealed that the broker-dealers did not have adequate supervisory systems in place to identify and understand the inherent risks of the offerings and, as a result, many of the firms failed to conduct adequate due diligence of the offerings. Also, many firms did not have reasonable grounds to believe that the private placements were suitable for their customers. Furthermore, the sanctioned principals did not have reasonable grounds to permit the firms' registered representatives to continue selling the offerings, regardless of the numerous red flags or signals that existed regarding the private placement. The following firms have been sanctioned by FINRA for failing to conduct a reasonable investigation or for failing to enforce procedures with respect to the sale of private placements offered by Medical Capital: Garden State Securities, Capital Financial Services, National Securities Corporation, Newbridge Securities, and Meadowbrook Securities.

FINRA has vowed to continue to look closely at sales of private placements to determine whether the selling firms are fulfilling their responsibilities to customers. These efforts reinforce that any firm or person who fails to conduct reasonable investigations of offerings, especially when there are multiple red flags, will not be permitted to shift all the responsibility to the issuers of fraudulent private placement investments.

Have you suffered losses in Medical Capital Holdings? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website,, post a comment, call (800) 732-2889, or email Mr. Pearce at for answers to any of your questions about this blog post and/or any related matter.