Securities America Settles Medical Capital Holdings Case With Massachusetts For $5 Million

Tuesday, May 24, 2011 07:09
Securities America Settles Medical Capital Holdings Case With Massachusetts For $5 Million

State securities regulators in Massachusetts have settled their end of the Medical Capital Holdings case with Securities America -- which means their citizens won't lose a single dime on the debacle.

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The first $2.8 million payment to 63 aggrieved MA investors is due in the next few days. Another $2.2 million will follow.


What's remarkable here, as usual, is the scale of these accounts that almost brought down one of the biggest firms out there -- and did in fact destroy several smaller ones.


Securities America sold $700 million in bad debt instruments from Medical Capital Holdings, but apparently only 0.7% of that came from the small but wealthy state of Massachusetts.


And those Bay State citizens who bought into these investments only nibbled, buying maybe $80,000 apiece.


It's real money, but I have to wonder now how concentrated these holdings were. Are we talking about widows and orphans being sold Medical Capital debt as a core investment, or ultra-high-net-worth families getting a taste of something exotic?


Insiders I've talked to say Securities America did its due diligence on these instruments. So if these were ultra-wealthy clients -- in Massachusetts and throughout the country -- wouldn't having a small allocation go bad be part of the normal cost of participating in the market?


And if these were middle-market retirees, the issue isn't really due diligence so much as the suitability of cramming so much of an exotic Reg. D instrument into a retail portfolio.



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