FINRA announced sanctions against 8 firms and 10 individuals, and ordered over $3.2 million in restitution, for selling interests in private placement offerings without having a reasonable basis for recommending the securities.  The high-risk private placements included securities issued by Provident Royalties, Medical Capital Holdings, and DBSI - all of which ultimately failed, leading to significant investor losses. Back in April, FINRA sanctioned 2 firms and 7 individuals for selling interests in the same private placements - also without having conducted a reasonable investigation. FINRA Allegations. FINRA's current findings fall into these categories of violation.

• In each case, the BD's allegedly didn't have adequate supervisory systems in place to identify and understand the inherent risks of these offerings.  As a result, adequate due diligence was not conducted for these offerings.
• Some firms didn't have reasonable grounds to believe that the private placements were suitable for any of their customers.
• The sanctioned principals didn't have reasonable grounds to allow firm RRs to continue selling the offerings, because numerous "red flags" pertained to the private placements.

"FINRA continues to look closely at sales of private placements to determine whether the selling firms are fulfilling their responsibilities to customers. These actions reinforce that any firm or individual who fails to conduct reasonable investigations of these offerings, especially in light of multiple red flags, will not be allowed to shift all the responsibility to the issuers of the fraudulent private placements." -- Brad Bennett, FINRA EVP, Chief of Enforcement.

Imposed FINRA Sanctions. The following firms (and individuals associated with these firms) were sanctioned for failing to conduct a reasonable investigation or for failing to enforce procedures with respect to the sale of private placements offered by Provident Royalties, LLC, Medical Capital Holdings, Inc. or DBSI, Inc.:

[C-I Note: We reported on cases involving at least several of these firms and individuals.  For further details, you can conduct a search of the C-I web site (be sure to place "quotation marks" around the full name of the firm or individual.  Also, FINRA lists selected AWCs related to this news release.]

• NEXT Financial Group, Inc. of Houston, TX, was ordered to pay $2 million in restitution to affected customers and fined $50,000; Steven Lynn Nelson, the firm's Vice President for Investment Products and Services, was suspended in any principal capacity for six months and fined $10,000 in connection with the sale of three Provident Royalties private placements.
• Investors Capital Corporation of Lynnfield, MA, was ordered to pay roughly $400,000 in restitution to affected customers in connection with the sale of two Provident Royalties private placements and was also sanctioned in connection with an additional offering issued by CIP Leveraged Fund Advisors.
• Garden State Securities, Inc. of Red Bank, NJ, and Kevin John DeRosa, a co-owner of the firm, were ordered to pay $300,000 in restitution on a joint-and-several basis to affected customers in connection with the sale of a Medical Capital private placement. DeRosa was also suspended for 20 business days in any capacity and for an additional two months in any principal capacity, and fined $25,000. Vincent Michael Bruno, the firm's Chief Compliance Officer at the time, was suspended for one month in a principal capacity and fined $10,000.
• Capital Financial Services of Minot, ND, was ordered to pay $200,000 in restitution to affected customers, and Brian W. Boppre, a former principal, was suspended in any principal capacity for six months and fined $10,000 in connection with the sale of three Provident Royalties private placements and a Medical Capital private placement.
• National Securities Corporation of Seattle, WA, was ordered to pay $175,000 in restitution to affected customers, and Matthew G. Portes, Director of Alternative Investments/Director of Syndications, was suspended in any principal capacity for six months and fined $10,000 in connection with the sale of three Provident Royalties private placements and a Medical Capital private placement.
• Equity Services, Inc. of Montpelier, VT, was censured, fined $50,000 and ordered to pay nearly $164,000 in restitution in connection with the sale of a private placement DBSI, Inc. issued; Stephen Anthony Englese, Senior Vice President for Securities Operations, was suspended from association with any FINRA-regulated firm in any capacity for 30 business days and fined $10,000; and Anthony Paul Campagna, a registered representative, was suspended from association with any FINRA-regulated firm in any capacity for 30 business days and fined $25,000.
• Securities America, Inc. of La Vista, NE, was censured and fined $250,000 in connection with the sale of two Provident Royalties private placements.
• Newbridge Securities Corporation of Fort Lauderdale, FL, was fined $25,000; Robin Fran Bush, the former Chief Compliance Officer of Newbridge, was suspended in any principal capacity for six months and fined $15,000 in connection with the sale of four DBSI private placements and a Medical Capital private placement.
• Leroy H. Paris II, former President and Chief Executive Officer for the now-defunct Meadowbrook Securities, LLC (fka Investlinc Securities, LLC), of Jackson, MS, was suspended for six months in any principal capacity and fined $10,000 in connection with the sale of two Provident Royalties private placements and a Medical Capital private placement.
• Michael D. Shaw, formerly associated with VSR Financial Services, Inc. of Baton Rouge, LA, was barred from the industry in connection with the sale of a private placement offered by DBSI, Inc. and several additional private placements offered by other issuers. In addition, Shaw falsified customer account documents.

Additional information from FINRA.

• From 2001 through 2009, Medical Capital Holdings, a medical receivables financing company based in Anaheim, CA, raised approximately $2.2 billion from over 20,000 investors through nine private placement offerings of promissory notes. Medical Capital made interest and principal payments on its promissory notes until July 2008, when it began experiencing liquidity problems and stopped making payments on notes sold in two of its earlier offerings. Nevertheless, Medical Capital proceeded with its last offering, Medical Provider Funding Corporation VI, offered through an August 2008 private placement memorandum. In July 2009, the SEC filed a civil injunctive action in federal district court in which it sought, and was granted, a preliminary injunction to stop all Medical Capital sales. The court appointed a receiver to gather and conduct an inventory of Medical Capital's remaining assets. The SEC action is pending.

• From September 2006 through January 2009, Provident Asset Management, LLC, marketed and sold preferred stock and limited partnership interests in a series of 23 private placements offered by an affiliated issuer, Provident Royalties. The Provident offerings were sold to customers through more than 50 retail broker-dealers nationwide and raised approximately $485 million from over 7,700 investors. Although a portion of the proceeds of Provident Royalties' offerings was used for the acquisition and development of oil and gas exploration and development activities, millions of dollars of investors' funds were transferred from the later offerings' bank accounts to the Provident operating account in the form of undisclosed and undocumented loans, and were used to pay dividends and returns of capital to investors in the earlier offerings, without informing investors of that fact. In July 2009, the SEC filed a civil injunctive action in the Northern District of Texas naming Provident and others for violations of the federal securities laws. The Court granted the SEC's request for a temporary restraining order, an emergency asset freeze and appointment of a receiver to take control of Provident and preserve the assets for the benefit of the defrauded investors. The SEC action is pending. On March 18, 2010, FINRA announced that it had expelled Provident Asset Management, LLC, a Dallas-based broker-dealer, for marketing a series of fraudulent private placements offered by its affiliate, Provident Royalties, LLC.

In concluding these settlements, the firms and individuals neither admitted nor denied the charges, but consented to the entry of FINRA's findings.   [FINRA News Release, 11/29/11] Click any line to access the AWC file.

NEXT Financial Group, Inc. and Steven Lynn Nelson – AWC No. 2009019063801 Investors Capital Corporation – AWC No. 2009019069701 Garden State Securities and Kevin John DeRosa – AWC No. 2009018819201 Vincent Michael Bruno – AWC No. 2009018771701 National Securities Corporation and Matthew G. Portes – AWC No. 2009019068201 Capital Financial Services – AWC No. 2009019125903 Brian W. Boppre – AWC No. 2009019125904 Equity Services, Inc. – AWC No. 2009017240702 Anthony Paul Campagna – AWC No. 2009017240701 Stephen Anthony Englese – AWC No. 2009017240703 Securities America, Inc. – AWC No. 2010022518101 Newbridge Securities Corporation – AWC No. 2009016159401 Robin Fran Bush – AWC No. 2009016159402 Leroy H. Paris, II – AWC No. 2009019070102 Michael D. Shaw – AWC No. 2009019388001