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Dallas-based securities firm Cullum & Burks Securities Inc. has had its license suspended by the Financial Industry Regulatory Authority Inc. The broker-dealer, which had 1,300 client accounts, 100 affiliated reps, and $150 million in assets, reportedly failed to files its mandatory, quarterly Focus report.

Last November, FINRA said the Texas broker-dealer had violated its net capital requirement because it didn’t have enough capital to stay in business. It was then that Cullum & Burkes raised more capital.

The securities firm was one of three broker-dealers listed as sellers of Medical Provider Funding Corp. V, which is a series of private placements that were created by Medical Capital. Other sellers on the list included Securities America Inc. and First Montauk Securities Corp., which is now defunct.

A Reg D filing with the SEC in 2007 reported that the offering was for $400 million. Medical Capital raised about $2.2 billion in investor funds. Now, over half of the investors’ money has been lost.

Cullum & Burks Securities Inc. is the subject of a class action lawsuit filed over the Medical Capital notes sale. The complaint contends that the notes should have been registered with the Securities and Exchange Commission. However, the securities firm denies that it engaged in broker-misconduct in relation to the sale and sees itself as a victim of any wrongdoing committed by Medical Capital. In 2009, the SEC charged Medical Capital Holdings Inc. with securities fraud related to private placement sales.

Related Web Resources:

Another broker-dealer down: Dallas B-D capsized by MedCap, Investment News, June 16, 2010
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A securities fraud lawsuit filed in federal court is suing Securities America and parent company Ameriprise Financial Inc. for selling allegedly faulty private placement offerings even after W. Thomas Cross, a Securities America executive, expressed concerns that the sales could result in a “panicked run on the bank.” The lawsuit’s plaintiff, Florida resident Ilene Grossbard, invested $112,000 in Medical Capital’s fifth deal in March and April. The complaint may become a class action lawsuit.

According to the complaint, Securities America advisers was still selling Medical Capital securities in the form of notes worth hundreds of millions of dollars in October of last year. Securities America, however, is discounting the claim that the company’ advisers continued selling the Med Cap notes even after Cross voiced his concerns.

Last July, the SEC charged Medical Capital Holdings with securities fraud over the sale of $77 million in private securities as notes. Now, a court receiver is questioning the worth of the medical receivables’ holding company. The company has raised $2.2 billion from investors.

Securities America, Inc. agreed to a $375,000 fine to settle charges by the NASD that it received improperly directed mutual fund commissions on behalf of one of its brokers, failed to supervise and failed to disclose the arrangements to the affected mutual fund owners.

The NASD said that this situation, in which a mutual fund company directed brokerage fees specifically for the benefit of a lone broker, is the first known case of its kind. NASD rules prohibit registered firms from allowing sales personnel to participate in directed brokerage arrangements. NASD fair dealing regulations also require disclosure to clients of such fees and other compensation received through arrangements involving their accounts.

A directed brokerage arrangement is one in which a client, such as a pension fund, directs a planner to use a certain broker-dealer for trade executions. In return for the commissions received on the transactions, the broker-dealer provides other services to the advisor or these can be rebated to the clients. The Securities America broker arranged for such commissions from union-sponsored retirement plan clients to be directed to his firm for his own benefit.

The NASD fined Omaha, Neb.-based Securities America Inc. a total of over $15 million for luring 32 long-term employees of Exxon Corporation into early retirement using false promises of high returns. The NASD stated that supervisors at Securities America largely ignored such actions by its registered representative who has been charged with violating securities regulations.

The NASD is focusing much of its enforcement resources on brokers and investment firms specializing in retirement planning services. The NASD’s chief counsel of the New Orleans region said retirement-age workers are extremely vulnerable to retirement planning investment scams. In many cases, the workers have little financial sophistication, but huge portfolios of assets that must be invested for post-employment purposes.

Employees of large companies such as Exxon are tempting targets for unscrupulous brokers touting inflated predictions of earnings to generate huge fees for the brokers. The target employees are able to “rollover” their retirement accounts, sometimes worth over a million dollars, to banks or brokerage firms. Often these workers hive little or no experience in investing and must rely entirely upon an investment advisor. This problem will grow as the baby boom generation retires.

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