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Monthly Archives: September 2009

Medical Capital Recovery Heats Up; Wells Fargo, Bank of New York Mellon Sued

Investors who suffered huge financial losses from Medical Capital Holdings are now taking legal action against Wells Fargo & Co. and The Bank of New York Mellon Corp., charging that the two banks, which served as trustees for five of Medical Capital’s special-purpose corporations, failed to protect MedCap investors. All five of special-purpose corporations are now in default after failing to make interest and principal payments on almost $1 billion in notes.

As reported Sept. 15 by Investment News, the new lawsuit claims executives with Medical Capital “used the trustee-controlled accounts as their personal piggy banks,” siphoning off fees of nearly $325 million to spend on such lavish perks as an 118-foot yacht.

Read the lawsuit here.

In July, the Securities and Exchange Commission (SEC) charged Medical Capital, which has raised $2.2 billion in private placements from investors since 2003, with fraud. Two of MedCap’s top executives, Sidney M. Field and Joseph Lampariello, also are being sued by the SEC. Later that same month, the Financial Industry Regulatory Authority (FINRA) began probing for information about sales of private placements from broker/dealers who sold Medical Capital offerings to investors.

Questions continue to abound about the quality of Medical Capital’s assets. The court-appointed receiver for Medical Capital recently revealed that some $543 million, or about 87% of all the accounts receivables controlled by Medical Capital, are “nonexistent.”

Tustin, California-based Medical Capital is a medical-receivables financing company that purchased account receivables from health care providers at a discount and then collected on the debts.

Seven investor plaintiffs in Butte and Santa Cruz counties are seeking class-action status on behalf of all MedCap investors. Other lawyers are launching or preparing legal action against securities brokers who sold MedCap funds.

Madoff Family Members Face Lawsuits For $198M

Bernie Madoff’s sons and other Madoff family members may soon be putting their over-the-top, extravagant lifestyles on the permanent backburner. Irving Picard, the man in charge of recovering assets from their convicted father for defrauded victims, stated in a Sept. 27 episode of 60 Minutes that he plans to sue Mark and Andrew Madoff, Madoff’s brother, Peter, and a niece for nearly $200 million.

Picard and David Sheehan, chief counsel, told 60 Minutes correspondent Morley Safer that the latest lawsuits will include charges of negligence and breach of fiduciary duty. In addition, the lawsuits will allege that family members personally profited tens of millions of dollars while working at Madoff’s New York investment advisory business.

According to the 60 Minutes interview, Sheehan believes about $36 billion went into the Madoff’s scheme. “About $18 (billion) of it went out before the collapse. And $18 (billion) of it is just missing. And that $18 billion is what we’re trying to get back,” Sheehan said.

Last December, Madoff confessed to one of the biggest frauds in Wall Street history when he admitted to conducting a decades-long $65 billion Ponzi scheme. He currently is serving a 150-year prison sentence.

Former LPL Financial Adviser Accused In Montana Ponzi Scheme

Two investment companies owned by a former LPL Financial broker have been shut down by the Montana Commissioner of Securities and Insurance on allegations their owner, Donald Chouinard, was running a Ponzi-like scheme that bilked investors, including some of Chouinard’s own friends, out of millions of dollars.

In addition to working for LPL Financial as a broker/dealer salesperson and investment adviser, Chouinard operated DC Wealth Management and DC Associates. On Sept. 18, Montana Commissioner of Securities and Insurance Monica Lindeen filed a Notice of Proposed Agency Action and issued a temporary Cease and Desist Order against Chouinard and his companies. According to state officials, Chouinard traded in investors’ LPL accounts without their authorization, traded excessively, and forged their signatures to authorize the trades. The excessive trades resulted in nearly $250,000 in commissions for Chouinard.

The Montana commissioner also says Chouinard failed to provide investors with statements or tax documents for their “day-trading” investments. Instead, he routinely informed investors about the values of their investments orally or via email. The complaints further allege that Chouinard misrepresented the values of various investments—in one case by as much as 10,000%.

Chouinard was fired from LPL in May.

One complaint alleges that Chouinard convinced an investor to make him a $100,000 loan and invest with him because he could guarantee a 40% return in 30 days. Instead of investing the money, however, Chouinard used $50,000 to pay off a previous investor, deposited $25,000 into his personal checking account, and gave the other $25,000 to an attorney.

Commissioner Lindeen’s complaint charges Chouinard and his companies of violating the antifraud provisions of the Montana Securities Act. Lindeen’s office is seeking to revoke Chouinard’s Montana securities license and suspend or revoke Chouinard’s Montana insurance producer license, as well as levy fines and demand restitution for investors. Chouinard could face penalties amounting to millions of dollars.

Tell us about your situation with a Ponzi scheme by leaving a message in the Comment Box below or Contact Us form. We want to consult you on your legal options.

Medical Capital Recovery: News For Investors

Investors who suffered losses because of financial ties to Medical Capital Holdings have taken a lead from a recently filed fraud lawsuit by the Securities and Exchange Commission (SEC) and are moving forth with legal claims of their own. In addition to suing Medical Capital, investors are initiating legal action against the brokerage firms that sold them Medical Capital investments and filing arbitration claims with the Financial Industry Regulatory Authority (FINRA) on charges of alleged breach of fiduciary duties and misrepresentation, as well as other allegations.

The SEC’s lawsuit against Tustin, California-based Medical Capital, which makes its profits by buying and then collecting on unpaid medical bills, alleges that the company stole some $18 million from investors and failed to disclose that several of its funds had entered into default.

At the same time the SEC filed its fraud charges against Medical Capital, FINRA issued a notice to an undisclosed number of broker-dealers for information about their sales practices regarding client investments in Medical Capital.

Currently, Medical Capital Holdings is under a court-appointed receiver, Thomas Seaman, along with its subsidiaries and affiliates: Medical Capital Corp. and Medical Provider Funding VI. The company’s assets, the assets of its affiliates and two executives – CEO Sidney Field and Joseph Lampariello, president and chief operating officer – also have been permanently frozen. Both men are named in the SEC’s July 16 lawsuit.

Tell us about your situation with Medical Capital by leaving a message in the Comment Box below or Contact Us form. We want to consult you on your legal options.

Next Financial, LPL Added To Jeremy McGilvrey Lawsuit

The brokerage firms of Next Financial and LPL Financial have both been added as defendants in a Bexar County, Texas, lawsuit that claims an elderly San Antonio couple -Thomas H. Crouch, 93, and his wife, Dorothy, 89 – lost nearly $2 million because of a fraud scheme masterminded by financial adviser Jeremy McGilvrey. McGilvrey is the once-flamboyant owner of the now-defunct Hill Country Wealth and a registered agent for LPL and Next Financial.

According to an Aug. 14 article by the San Antonio News, the complaint in the Crouch case accuses McGilvrey, Hill Country Wealth President Lance Smith and others of “plundering” the elderly couple’s wealth by inducing them to make risky investments, buy stock in Hill Country Wealth and even lend the firm money. The lawsuit was filed by James Crouch, who serves as guardian for his father and stepmother. The elderly Crouch apparently suffers from Alzheimer’s disease and dementia, while his wife is being treated for depression and memory loss.

“McGilvrey and Smith embarked on a scheme to take as much money from their clients as possible, including the sale of the client’s solid, safe investments, in order to have cash in the accounts of Hill Country Wealth, and in the pockets of McGilvrey and Smith,” the lawsuit said.

Among the charges listed in the complaint: Fraud, sale of unregistered securities and civil conspiracy.

According to information posted on the Financial Industry Regulatory Authority’s Web site, McGilvrey’s employment history says he worked for LPL until June of 2008 when he was “permitted to resign” for “failure to properly supervise (a) registered representative with respect to reporting of (a) direct business transaction.”

His “next” stop, albeit short lived, was Next Financial. In May, he was fired for violating company policy by borrowing from a client. Reportedly those clients are the Crouches.

McGilvrey’s professional intrigue doesn’t end there. An Aug. 2 article in the San Antonio News says McGilvrey reportedly told prospective clients that he had received the “Top 100 Financial Advisors Award” from Money Magazine for four consecutive years. McGilvrey further cited articles about his investing prowess in the Wall Street Journal and Fortune Magazine. In reality, however, the award McGilvrey connected to Money Magazine hasn’t existed for 20 years. And the newspaper citations could not be found.

As for Next Financial, it is no stranger to lawsuits based on charges of failure to supervise its agents. In 2008, FINRA records show that Next Financial paid a $1 million fine because it “failed to create a reasonable system and written procedures for supervising branch offices, regional managers and registered representatives.”

The same FINRA report also states that a manager with Next Financial “churned customer accounts whereby customers lost $565,000 because no one at the firm was reviewing his transactions.”

Next Financial also is one of several independent broker-dealers with advisers selling private securities of an oil and gas partnership – Provident Asset Management LLC – that the Securities and Exchange Commission (SEC) charged last month of committing a $485 million Ponzi scheme.

In addition to the civil litigation, the Texas State Securities Board and San Antonio police are investigating possible criminal offenses by McGilvrey and others.

Meanwhile, McGilvrey – who once cultivated an image of wealth with his black Bentley convertible and trips to Las Vegas and Australia on a private jet – is missing in action. He has not been seen or heard from in months.

Citigroup Plans To Divest Entire Stake In Smith Barney

Speaking at the Barclays Capital Global Financial Services Conference on Sept. 15, Citigroup CEO Vikram Pandit for the first time announced publicly that he anticipates the bank to divest its entire 49% stake in Morgan Stanley Smith Barney LLC.

New York-based Citigroup has been among the country’s hardest-hit financial institutions from the credit crisis. Over the past 18 months, the struggling bank – which Richard Shelby, R-Ala., referred to in March as a “problem child” – slashed its assets by $500 billion. As a result of ongoing liquidity concerns, Citigroup has borrowed about $45 billion in taxpayer bail-out money through the Troubled Asset Relief Program.

Citi also continues to face mounting legal and financial woes over its alternative investments, including the ASTA/MAT hedge funds. Currently, the funds are at the center of numerous lawsuits and arbitration claims with the Financial Industry Regulatory Authority (FINRA) by investors who allege Citigroup misrepresented the products as safe, conservative and stable fixed-income investments. Any losses were projected to be minimal – no more than 5% a year in the worst-case scenario, according to the company.

Instead, ASTA/MAT plummeted in value last summer because of turmoil in the financial markets and housing markets. During the same time the funds were sinking, however, Citigroup allegedly told investors to “stay the course” and that ASTA/MAT would rebound once the markets stabilized.

That didn’t happen. As it turns out, the ASTA/MAT funds were highly leveraged, borrowing approximately $8 for every $1 raised. Meanwhile, the managers ASTA/MAT continued to invest in some of the most risky and speculative investments possible.

REIT Retreat: Investors Find Problems In Non-Listed REITs

For a growing number of investors in non-listed REITs, the past year has taken a nod from Hotel California: Moving in was easy, but now they can’t get out. As reported in the financial press, liquidity issues have forced six of the biggest REITs to halt their redemption programs recently.  Among them: Inland American Real Estate Trust, Inland Western Retail Real Estate Trust, Piedmont Office Realty Trust, Wells Real Estate Investment Trust II, Behringer Harvard REIT I and Cole Credit Property Trust II.  

For many investors, the potential risks and high costs of these REITs made them unsuitable and inappropriate investments from the outset, especially for investors who were elderly or retired. Unfortunately, some brokerages and financial advisers never disclosed these facts. Instead, lured by potentially big commissions and fees of up to 15%, they marketed and sold the products as safe, conservative investments that were similar to certificates of deposit.

In addition to liquidity problems, many non-listed REITs are suffering from valuation issues. This is especially true in the case of REITs with a high concentration of commercial real estate purchased just before and during the housing market crash of 2007.  As a result, more investors are now holding an illiquid investment or, at best, have no idea of the investment’s actual value. 

Inland American Real Estate Trust is a prime example. Investors who recently tried to sell shares in this REIT on the secondary market were reportedly quoted prices of 40 cents on the dollar – despite the fact their statements continue to reflect double that amount. 

If you believe your brokerage or financial adviser misrepresented the characteristics of non-listed REITs like Inland American Real Estate Trust or failed to disclose its risks,please fill out the Contact Us form. Or leave a comment below, we want to consult you on your options.

Provident Royalties Caught Up In Massive Ponzi Fraud

Bernie Madoff and his $65 billion scam have singlehandedly made Ponzi schemes a near-daily front-page news story. Now it’s Provident Royalties LLC making news. Provident, along with its three founders – Paul Melbye, Brendan Coughlin and Henry Harrison – was charged by the Securities and Exchange Commission (SEC) in July for allegedly bilking thousands of oil and natural gas investors in a $485 million Ponzi scheme. Broker-dealer Provident Asset Management LLC and the 21 entities that offered and sold the securities to investors also were named in the lawsuit.

According to the complaint, Dallas-based Provident raised nearly half a billion dollars from more than 7,000 investors by promising high returns and misrepresenting how the funds would actually be used. The alleged fraud reportedly went undetected by regulators for three years – from September 2006 until January 2009. In typical Ponzi-like fashion, a portion of investors’ funds is said to have been used to pay earlier Provident investors.

“Investors were told that 86% of their funds would be placed in oil and gas investments. That representation was false,” the SEC’s complaint said.

For more information about the SEC’s action against Provident, you can read Litigation Release No. 21118. Dennis L. Roossien, Jr., has been named as the court-appointed receiver in the case. For the latest information about the receivership, visit the Receiver’s Web site.

Medical Capital Holdings’ Sidney Field No Stranger To Fraud Charges

Sidney M. Field, CEO of Medical Capital Holdings and who along with Medical Capital was sued last month by the Securities and Exchange Commission (SEC) for allegedly cheating investors out of millions of dollars in securities notes, faced similar fraud charges in the early 1990s. At the time, Field was the founder, past president and chairman of FGS, a large insurance broker.

According to an Aug. 24 story in the Orange County Register, Field supervised agents who allegedly employed a deceptive practice known as “sliming” to sell automobile insurance policies. In essence, the agents would alter accident records of questionable drivers, falsify information about car values and commute mileage so that an applicant could qualify for insurance coverage.

FGS also allegedly duped customers into paying interest rates of 21% to 40% when they financed their premiums, according to Aug. 24 story in The Register.

In August 1990, the Department of Insurance sued Field for civil racketeering and ultimately revoked his license. Field was sued again three years later – this time for fraud. He paid $100,000 to settle that lawsuit.

Investors in Medical Capital Holdings never knew about Field’s previous disciplinary actions with regulators, according to The Register story. If such information had been at their disposal, they never would have put their money and trust in Field or Medical Capital Holdings.

“If I would have known, forget about it,” said Jim Palladino. Palladino, who invested $160,000 in Medical Capital, says his broker told him that Medical Capital “was as solid as a rock.”

In February, Palladino stopped receiving checks from his Medical Capital notes. In August, he was forced to put his home up for sale and look for part-time work at the age of 73.

Another investor, Carol Marini, 64, placed her life savings of $145,000 with Medical Capital. Marini, a former school teacher, says she has lost everything.

If you have questions about your Medical Capital investments please contact us. Tell us about your situation by leaving a message in the Comment Box below or Contact Us form. We want to consult you on your options.

FINRA Rules Against Charles Schwab In YieldPlus Claim

A Financial Industry Regulatory Authority (FINRA) arbitration panel in Reno, Nevada, has ruled in favor of investors and their claim against Charles Schwab (SCHW) for financial losses suffered in the Charles Schwab YieldPlus Funds. In ruling against San Francisco-based Schwab, FINRA awarded Raymond and Elsie Kelly $74,430 plus interest, as well as $25,650 for attorney fees. In addition, FINRA assessed the entire costs of the arbitration proceeding – $5,250 – against Charles Schwab.

“Although Charles Schwab recommended the purchase of the Schwab YieldPlus Fund Select Shares (SWYSX) and the Schwab YieldPlus Investor Shares (SWYPX) as safe, conservative cash alternatives to investors, the evidence presented in this case clearly establishes that the funds were over concentrated in high risk, speculative mortgage-backed securities,” said the Kellys’ attorney Thomas Hargett of Maddox Hargett & Caruso, P.C.

Specifically, the Kellys’ arbitration claim (FINRA Case No. 08-02307) alleged that Charles Schwab marketed and sold the Schwab YieldPlus Funds as a conservative investment alternative to money market funds. In addition, the YieldPlus Funds supposedly offered a higher return potential with only marginally higher risks. In reality, the Schwab YieldPlus Funds held large concentrations of toxic subprime-related assets and other speculative products.

From June 2007 through June 2008, investors in the YieldPlus Funds lost 31.7%, while other ultra short bond funds experienced little or no losses.


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