Regulator fines US brokers: in private placements

Two companies and seven brokers were fined by an industry regulatory group because they sold securities to investors from companies that were on the verge of collapse, officials said on Thursday. The sanctions involved private-placement sales of securities in Medical Capital Holdings Inc and Provident Royalties LLC, which both entered court-ordered receiverships.
The companies' earlier financial troubles resulted in "significant investor losses," the Financial Industry Regulatory Authority said in a statement. The sanctions are the latest actions surrounding the collapse of Medical Capital, also called MedCap, and Provident Royalties, which were the target of US Securities and Exchange Commission lawsuits in 2009 seeking asset seizures and receiverships after the companies defrauded investors, according to FINRA.
In the latest crackdowns, FINRA, a nongovernmental regulatory group, said it ordered Workman Securities Corp of Minnesota to pay $700,000 in restitution to customers. The firm's former president, Robert Vollbrecht, was barred in any principal capacity and fined $10,000, FINRA said.
The regulator also fined Minnesota-based Askar Corp $45,000 for its failure to conduct due diligence on a private placement from DBSI Inc, which also defaulted on its obligations. FINRA found that Askar failed to independently verify DBSI's representations in its securities offering documents.
The broker-dealers who sold the MedCap, Provident and DBSI offerings "did not have reasonable grounds to believe that the private placements were suitable for any of their customers," according to FINRA. Senior officials at the broker-dealers failed to meet their responsibilities to clients by not conducting reasonable investigations, FINRA said.
Soured securities from Medical Capital and Provident Royalties also led to investor litigation against Securities America, a broker-dealer owned by Ameriprise Financial. Securities America recently reached a preliminary settlement aimed at ending threats to its survival, sources familiar with the negotiations said last week.
In Thursday's action, FINRA fined Timothy Cullum, former chief executive officer of now-defunct Cullum & Burks Securities Inc, $10,000 and handed out a six-month suspension in any principal capacity. The firm's former president, Steven Burks, received the same penalties as Cullum.