Colorado Stockbroker Investigated, No Longer Holds License

Boulder, COA recent case of stockbroker fraud has turned up in Colorado in the wake of the fraud charges leveled against Medical Capital by the Securities and Exchange Commission (SEC) last summer. According to the 4/19/10 issue of Investment News, a number of independent broker-dealers and their representatives have since been caught up in the scandal.

Medical Capital sold $2.2 billion in private notes, according to reports, but was allegedly operated as a Ponzi scheme. Regulators are investigating Medical Capital's claims that it never lost money.

The alleged scheme last month caught up yet another stockbroker in its tangled web when the Colorado Securities Division reportedly revoked the license of John B. Guyette over an alleged violation of federal and state securities laws by selling private notes marketed by Medical Capital.

Guyette counters the allegation, claiming that his license was not revoked, but that he surrendered it voluntarily. "I voluntarily resigned rather than take this to [court]. I decided not to fight this and retired," said Mr. Guyette, who is 69 and no longer registered with the Financial Industry Regulatory Authority Inc.

The stockbroker, who neither admitted nor denied the allegation, says that he invested $205,000 of his own capital in Medical Capital notes.

According to a statement filed last month by Colorado Securities Commissioner Fred Joseph, regulators alleged that Guyette sold private placements to a collection of investors with whom he lacked substantial prior relationship. Those dealings put Guyette in violation of Regulation D, the federal securities law under which private placements are usually offered. Regulation D offerings were allowed starting in 1982 as a means of simplifying the process of raising capital for owners of small business. Regulation D is therefore long on opportunity but short on accountability, in that the regulation allows for exemptions from federal registration for limited offerings.

According to information contained in Guyette's record in the Finra BrokerCheck system, the stockbroker received three complaints from clients with regard to private placements and the sale of Medical Capital notes. The complainants alleged damages totaling $650,000.

FINRA began investigating Guyette in February.

Critics of Regulation D offerings cite undue expense of the deals, a lack of liquidity and the presence of risk, even though the offerings are limited in regulatory scrutiny.

"Our investigation into the offer and sale of Medical Capital securities by licensed stockbrokers is ongoing," said Colorado Securities Commissioner Fred Joseph in a statement. "This was a 'private offering' under federal law, so-called Regulation D, meaning the [Colorado Securities Division] was pre-empted from oversight of the offering under federal law. But licensed stockbrokers in Colorado were still under a duty to properly research this offering and ensure that the investments were suitable for each investor."