Capital Financial Services has been fined by the Financial Industry Regulatory Authority (FINRA) for failing to conduct adequate due diligence on private placement offerings by both Provident Royalties and Medical Capital Holdings. Capital Financial was responsible for selling more than $50 million in Provident and Medical Capital securities, which were part of two Ponzi schemes that caused investors to lose over $1 billion. Capital Financial has been fined $200,000.00 for making unreasonable recommendations to its customers, and it is also facing charges with similar allegations by the Securities and Exchange Commission (SEC).
A Ponzi scheme is an unsustainable fraud pyramid that inevitably ends in ruin. Schemers use money raised from latter investors or investors higher up the pyramid to pay an earlier investor's returns. Ponzi schemes invariably fall apart when markets deteriorate or when the schemer is unable to raise more cash.
Due diligence requires a reasonable investigation of all material facts before entering into an agreement or transaction with another person or entity. It is a measure taken to prevent unnecessary harm to an innocent party. The measure would require an entity offering and selling a security to analyze the legitimacy, nature, and risks associated with the product.
Capital Financial had a duty to investigate the details of the offerings before offering and selling them to its clients. Despite many red flags, Capital Financial carried on with sales of both Provident Royalties and Medical Capital, which paid minimum commissions of 8%. As a result, hundreds of FINRA arbitration claims have been filed against Capital Financial for failure to perform due diligence.
Were you a Capital Financial Services client who suffered losses in Provident Royalties and/or 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, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.
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