More On The Medical Capital Holdings Scandal: Due Diligence Is Required, FINRA Says Hot

As the smoke clears from FINRA's extraordinarily punitive $1.2 million fine of a California broker for failing to notice that the investments he bought for a client's account were fake, lessons and warnings are both materializing.

Securities America, the broker's firm, has protested the fine on the grounds that everyone involved acted "appropriately" -- the context being that the broker did his homework and the alleged securitized medical debt he sold an 80-year-old client looked sound at the time.

But once that $700,000 investment was actually revealed as nothing but another worthless Ponzi scheme, the client was still out the cash, and FINRA seems to be blaming the broker and the firm for not catching the fraud on their own.

Not having the prospectus from Medical Capital Holdings myself, I can't say whether it looked like a legitimate investment or not. What is more alarming is that the client had apparently never invested in anything remotely "exotic" or risky . . . and somehow she ended up with a big allocation in these sophisticated CDO instruments. 

That may be the source of FINRA's disgruntlement here, whatever the quality of the original broker's due diligence.

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