Corporate & Securities Law

Private Placements A Financial Disaster For Some Investors

By Keith Griffin

Private placements - from Medical Capital to Provident Royalties - have made a name for themselves this year, producing massive financial losses for unsuspecting investors. Unsuspecting because, in many instances, investors were unaware of the untold risks associated with these largely unregulated investments.

Take Tracy Nye, a 50-year-old Idaho restaurant owner who was forced to come out of retirement after losing $1.5 million on private placements in Medical Capital Holdings and in Shale Royalties, an affiliate of Provident Royalties LLC. Both entities were sued for fraud by the Securities and Exchange Commission (SEC) in the summer of 2009.

In total, investors lost more than $1 billion in private placements issued by Tustin, California-based Medical Capital and some $485 million from Dallas-based Provident Royalties, an oil and gas investment firm.

According to the SEC, both Medical Capital and Provident misrepresented their investments, as well as misappropriated investors? money.

Meanwhile, investors like Nye are paying the price. Many have witnessed their life savings vanish overnight, while others say their money for retirement and children?s college education are now a thing of the past.

As reported in a Nov. 19 article by Bloomberg, private placements were initially marketed and sold to institutional investors and financially savvy individuals. However, because the SEC hasn?t changed the majority of its net-worth requirements for private placements since 1982, the products are being sold to investors even though many may not thoroughly understand what they?re actually getting into. In particular, retirees are a favored target of issuers of private placements because they have access to retirement accounts and equity in their homes.

According to the Financial Industry Regulatory Authority (FINRA), complaints about private placements have increased 35% in this year alone and more than 50% in 2009. Earlier this year, FINRA issued a notice to brokers regarding private placements; it also has launched an investigation into an undisclosed number of broker/dealers regarding sales practices of the products.

If you sustained financial losses related to Medical Capital, Provident Royalties or another private placement investment, contact our securities fraud team. We will evaluate your situation to determine if you have a claim.

Full post as published by Representing Investors on November 29, 2010 (boomark / email).