According to a recent article in InvestmentNews and a recently filed court exhibit, securities regulators were concerned about Medical Capital’s lack of audited financial information five years before Medical Capital Holdings Inc.’s private-placement financings imploded and wiped out $1.1 billion in investors’ cash.
The article references a July 2004 e-mail from David Spinar, the former head of compliance at Securities America Inc., in which he indicates that officials with NASD, (now FINRA) “expressed concern that Medical Capital didn’t have audited financial statements.” As discussed in earlier posts, the concerns about audited financials were also brought to light by the complaint filed earlier this year by The Commonwealth of Massachusetts Securities Division. According to that complaint, the lack of “audited financials,” was highlighted in 2005 as a risk by Securities America’s own President and a voting member of the Due Diligence Committee, Jim Nagengast. According to the complaint, Mr. Nagengast wrote an email in 2005 to Tom Cross (former chairman of Securities America’s due diligence committee) stating,
“my big concern is the audited financials. At this point, there is no excuse for not having audited financials ‘. It is a cost they simply have to bear to offer product through our channel. We simply have to tell them that if they don’t have financials by XXXX date we will stop distributing the product on that date. Then they can decide if it’s worth spending $50,000 to have it done. If they won’t spend the money, that should give us concerns.”
Apparently, Securities America’s internal Due Diligence Committee ignored its President’s recommendations and continued to sell hundreds of millions of dollars of the Medical Capital Notes without any audited financials.
Pratt H. Davis, a partner at Page Perry in Atlanta, observed “From the evidence in the Massachusetts complaint and other available documents, it appears that Securities America not only mislead investors but also intentionally made material misrepresentations and omissions to investors in order to get them to purchase these Medical Capital notes. Mr. Davis further noted, “it appears that Securities America not only turned a blind eye to the red flags and significant warnings in the due diligence reports, including the lack of audited financials, but also took specific actions to mislead the investors into believing such risks did not exist.”
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 investors in Medical Capital note cases. For further information, please contact us.