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The following story appeared on the Dow Jones Newswire:
The Financial Industry Regulatory Authority on Thursday sanctioned two firms and seven people for selling private placements in companies that ultimately failed without conducting reasonable investigations into the firms.
The industry’s self-regulating organization sanctioned Workman Securities Corp. along with people who worked for Workman; Cullum & Burks Securities Inc., Capital Financial Services Inc., Meadowbrook Securities LLC and Peak Securities Corp. for failing to notice several red flags in Medical Capital Holdings Inc. and Provident Royalties LLC. Two of the financial firms sanctioned are now defunct.
MedCap, a medical receivables financing company, raised about $2.2 billion from more than 20,000 investors through nine promissory note offerings before liquidity problems forced it to stop meeting payments in 2008, Finra said.
The company still proceeded with its last offering, which executives used to defraud investors of $18.5 million in misappropriated funds, the U.S. Securities and Exchange Commission has claimed.
Provident Asset Management claimed to sell interests in oil and gas exploration and other development activities from 2006 through 2009, but instead transferred millions of dollars in investor funds to other company accounts through undisclosed and undocumented loans. Those funds were used to pay dividends and returns of capital to investors in the earlier offerings.
Finra also fined Minnesota-based Askar Corp. $45,000 for lack of due diligence on a private placement from DBSI, Inc., a firm that ultimately defaulted on its obligations.
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