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The CEO of Securities America, Steve McWhorter, said he will retire this spring after 22 years at the helm of the independent broker-dealer. He said in an interview late last week that he is leaving simply to enjoy retirement and spend more time with his family, and he stressed that there was no other component to his decision. He will remain in his role until a replacement is found.
This news comes as Securities America is facing numerous securities arbitration claims filed by investors to recover losses sustained in Medical Capital Notes. On July 16, 2009, the Securities and Exchange Commission (“SEC”) filed fraud charges against Medical Capital Holdings in connection with the sale of $77 million of private securities. On the same day, FINRA issued a sweep notice to obtain information from several broker-dealers regarding the sale of Medical Capital securities. Since that time, several arbitration claims have been filed against brokage firms who sold Medical Capital Notes, including Securities America, to recover millions of dollars in losses.
A class action lawsuit was also filed against Securities America in connection with its sales of Medical Capital Notes. The lawsuit alleges that Securities America “did not make a reasonable investigation or possess reasonable grounds to believe that the statements contained and incorporated by reference in the [Private Placement Memoranda] at the time of the MedCap Entities’ offerings were true and without omissions of material fact and were not misleading. Had…Securities America…exercised reasonable care, they would have known of such omissions.” Under NASD Rules, brokerage firms have an obligation to make suitable recommendations to their customers and to conduct adequate due diligence of new products before they are sold to their customers.
FINRA has provided guidance concerning the kinds of questions which should be asked by a brokerage firm before offering a new product, and it has highlighted best practices for reviewing new products. Specifically, FINRA has stressed the need for firms to take a proactive approach in reviewing and improving their procedures for developing and vetting new products. Those procedures should include straightforward guidelines for determining what constitutes a new product, ensure that the proper questions are asked and answered before a new product is offered for sale, and provide for post-approval follow-up and review.