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Medical Capital Holdings and Provident Asset Management

On July 16, 2009, the Securities and Exchange Commission charged Medical Capital Holdings Inc. of Tustin, Calif., with fraud in the sale of $77 million of private securities in the form of notes. The same day, the Financial Industry Regulatory Authority Inc. of New York and Washington sent a sweep letter to broker-dealers looking for details into the sale of the product.

On July 7, 2009, the SEC charged Provident Asset Management LLC of Dallas with operating a fraud and a Ponzi scheme in the sale of $485 million of preferred stock and limited partnership offerings in oil and gas deals.

According to brokerage executives with the firms, industry sources and documentation, the firms that sold either one or both of the investments include Capwest Securities Inc., GunnAllen Financial Inc., J.P. Turner & Co. LLC, National Securities Corp., Next Financial Group Inc. and Securities America Inc.

The outcome for broker-dealers whose advisers sold private securities and face fraud charges is unknown. Broker dealers and investment advisors who sold these private deals owed their customers and had the responsibility to perform appropriate due diligence on the investments prior to their sale.

On January 26, 2010, the Commonwealth of Massachusetts filed a regulatory action against Securities America providing further evidence that investors were misled by the firm in connection with the sale of Medical Capital promissory notes.

The Massachusetts' complaint is based on Securities America's "material omissions and misleading statements made" in the course of the sale of approximately $697 million of promissory notes to Medical Capital investors.

The Massachusetts complaint states "…all material risks and information regarding MC Notes were not disclosed to investors. These risks were known to [Securities America]. Year after year, the due diligence analyst, retained by [Securities America] to conduct a review of the various Medical Capital offerings, specifically requested and at many times pleaded that investors be informed of certain heightened risks."

At the deposition taken by Massachusetts of Securities America's Chairman of Due Diligence and Head of Sales, Thomas Cross, it is reported that Mr. Cross was asked why certain information recommended to be given to the investors by the due diligence analyst was not provided. Mr. Cross responded that giving such information would be a “bad thing.”

The Massachusetts investigation also uncovered that "top executives" at Securities America enjoyed vacation trips such as golfing at Pebble Beach and stays at Las Vegas resorts which were paid for by Medical Capital.

Aidikoff, Uhl & Bakhtiari has represented investors who have purchased fraudulent investments such as Medical Capital Holdings and Provident Asset Management.

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