As reported in recent articles in Investment News, after the SEC filed fraud charges against Medical Capital Holdings Inc, the Financial Regulatory Authority indicated that it has “a number of investigations under way involving the allegations of wrongdoing arising from the sale of these ‘Reg D’ private placements.” Regulation D refers to the securities regulation that governs the sale of private-placement investments that don’t have to be registered with regulators.
Public securities offerings must be generally be registered under the Securities Act of 1933. Registration protects investors, at least in theory, by requiring disclosures, including audited financial statements, and review of those disclosures by a gatekeeper, the U.S. Securities and Exchange Commission. The SEC can prevent an offering from being made when there are deficiencies in the registration statement. Regulation D provides certain exemptions from the registration requirement, thus removing that gatekeeper protection.
According to a quote in a recent Investment News article, Janice J. Sackley of Fiduciary Foresight , LLC stated when discussing private placements, “There are many in the industry who are selective about disclosure.”
The concern about disclosure in Reg D offerings is echoed by Pratt H. Davis of Page Perry, “Medical Capital’s implosion has brought the lack of disclosure in many Reg D investments to the forefront.” On July 16, the SEC charged Medical Capital Holdings Inc. with fraud related to the sale of private securities in the form of notes. In wake of the collapse, the Commonwealth of Massachusetts Securities Division filed a Complaint against broker/dealer Securities America related to its sales of Medical Capital Notes. The complaint contains allegations that Securities America failed to disclosed certain material risks to it customers. The collapse of the Medical Capital investments has left investors nationwide in the hole to the tune of about $1 billion. According to Mr. Davis, “thousands of investors in the Medical Capital offerings do not appear to have received the requisite disclosure of the risks involved.” Many observers, including Mr. Davis, believe that the hammer will fall on other Reg D offerings in the near future.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and corporate investors in auction-rate securities cases. For further information, please contact us.