Monthly Archives: October 2009

Medical Capital Holdings is mired in legal issues these days, facing arbitration claims and a recently filed class action lawsuit over sales of Medical Capital Notes. In July, the Securities and Exchange Commission (SEC) entered the picture, as well, announcing fraud charges against Medical Capital Holdings and related Medical Capital entities. In its complaint, the SEC accuses Medical Capital Holdings of defrauding investors, misappropriating millions of dollars of investor funds and failing to disclose information about soured investments.

According to the SEC, Medical Capital raised more than $2.2 billion through offerings of notes in Medical Provider Funding Corp. VI and earlier offerings made by five other wholly owned special-purpose corporations (SPCs) named Medical Provider Funding Corp. I, II, III, IV and V. Today, all five SPCs are in default to investors after failing to make interest and principal payments.

Investors got another dose of bad news following a recent report by Thomas Seaman, the receiver assigned to inventory Medical Capital Holdings’ assets. In his report, Seaman wrote that Medical Capital had placed investors’ cash into investments completely unrelated to the medical receivables business. When those investments soured, Medical Capital defaulted.

Among the investments:

• An unreleased movie, The Perfect Game. Medical Capital poured at least $20 million into the project.
• Vivavision Inc., a maker of cell phone applications. Its sole product, the receiver wrote, “was a live video feed of a hamster in a cage.” Medical Capital spent $7 million on this “investment.”
• A yacht named “The Homestretch.” The receiver said a Medical Capital subsidiary occasionally employed a captain and crew for sailing excursions aboard the yacht, primarily for Medical Capital’s CEO Sidney M. Field and President Joseph Lampariello.

Medical Capital also had serious problems in its core business, according to the receiver.  On at least 301 occasions, investor funds run by Medical Capital sold some of their receivables to other Medical Capital funds – sometimes years after the due date. This information – which was never revealed to investors – is significant because receivables lose value with age.

Moreover, an additional $543 million – 87% of all the accounts receivable on MedCap’s books – are “non-existent,” according to the receiver’s report.

If you have suffered losses in Medical Capital Notes and wish to discuss filing an individual arbitration claim with the Financial Industry Regulatory Authority (FINRA) or have questions about your Medical Capital investments, please leaving a message in the Comment Box below or via the Contact Us form. We want to counsel you on your legal options.

Arbitration claims involving Medical Capital Holdings are expected to escalate in the coming months, as investors take certain broker/dealers to task over allegations of misrepresentation and omission of material facts in connection to sales of Medical Capital Notes.

On Sept. 18, 2009, a class action lawsuit – Case No. 09-CV-1084 – was filed in the United States District Court for the Central District of California on behalf of investors who purchased securities issued by Medical Provider Financial Corp. III, Medical Provider Financial Corp. IV, Medical Provider Funding Corp. V and/or Medical Provider Funding Corp. VI. In the lawsuit, broker/dealer Cullum & Burks Securities, as well as other broker/dealers, is named as a defendant. Among the allegations cited in the complaint are violations of Sections 12(a)(1) and 12(a)(2) of the Securities Act of 1933.

Specifically, the defendants are accused of failing to exert due diligence and properly investigate certain securities issued by Medical Capital. In July, the Securities and Exchange Commission (SEC) filed fraud charges against Medical Capital Holdings and related Medical Capital entities. In the SEC’s complaint, Medical Capital is accused of defrauding investors by misappropriating about $18.5 million of investor funds and by misrepresenting to investors that no prior offerings had defaulted on or been late in making payments to investors of principal and/or interest.

According to the SEC, Medical Capital raised more than $2.2 billion through offerings of notes in Medical Provider Funding Corp. VI and earlier offerings made by five other wholly owned special-purpose corporations (SPCs) named Medical Provider Funding Corp. I, II, III, IV and V. Today, all five SPCs are in default to investors after failing to make interest and principal payments.

The brokerage firms that marketed and sold Medical Capital Notes are alleged to have made untrue statements about the investments, including their risks. In addition, many of the broker/dealers failed to make “reasonable and diligent” inquiries regarding information about Medical Capital and its offerings. As it turns out, the information was seriously flawed. And investors are now paying dearly for this breach of fiduciary duty.

If you have suffered losses in Medical Capital Notes and wish to discuss filing an individual arbitration claim with the Financial Industry Regulatory Authority (FINRA) or have questions about your Medical Capital investments, please contact us by leaving a message in the Comment Box below or on the Contact Us form.

Securities America, a subsidiary of Ameriprise Financial, is becoming the target of more investor claims filed with the Financial Industry Regulatory Authority (FINRA) over allegations it falsely misrepresented private placement offerings associated with Medical Capital Holdings – the same company that the Securities and Exchange Commission (SEC) has charged in a $2 billion Ponzi scheme.

In a federal lawsuit filed in Omaha, Nebraska, a Sarasota woman alleges that Securities America sold hundreds of millions of dollars worth of securities in the form of notes for Medical Capital Holdings, a medical receivables financing company based in Tustin, California.

In August, Medical Capital was sued by the SEC for investor fraud. Among the charges, the SEC alleges that Med Cap and various subsidiaries raised more than $2.2 billion since 2003 through the offering of notes. As of August 2008, five of the “Special Purpose Corporations” were in default or late in paying nearly $1 billion in principal and interest to investors.

The lawsuit contends Securities America violated Nebraska securities law and was negligent for failing to investigate accounting irregularities at Medical Capital. It seeks class action status to represent investors who bought the Medical Capital notes from Nov. 21, 2007, through July 31, 2008.

“Securities America did not care; instead, in favor of millions in commissions and fees, it turned a blind eye to the truth, which is that the medical receivables company’s accounting records and practices strongly pointed towards the existence of a Ponzi scheme,” the lawsuit says.

If Securities America or another brokerage has sold you Medical Capital notes, please contact us by leaving a message in the Comment Box below or on the Contact Usform.

Medical Capital Holdings, based in Tustin, California, is a medical receivables financing company that purchases accounts receivable from healthcare providers at a discount and then collects the debts owed on the accounts. Since 2003, the company has raised more than $2 billion from investors via offerings of notes issued by five Special Purpose Corporations (SPCs). Today, all five SPCs are in default to investors after failing to make interest and principal payments on almost $1 billion worth of Med Cap Notes.

In July, the Securities and Exchange Commission (SEC) filed securities fraud charges against Medical Capital. One month later, on Aug. 3, Thomas Seaman was appointed as the permanent receiver of Medical Capital. On Oct. 9, in a third report regarding Medical Capital’s financial status, Seaman concluded that of the $625 million of medical accounts receivable on the SPCs’ collective books, $80 million is verifiable. The remaining accounts – totaling $542 million – no longer exist.

For investors holding Medical Capital Notes, the news undoubtedly translates into substantial financial losses.

A class action lawsuit is now pending against Medical Capital. Filed Sept. 11 on behalf of investors in the five Special Purpose Corporations, the lawsuit alleges that the trustees of the SPCs repeatedly breached their fiduciary duty to investors. In addition, the class action states that while the trustees were paid “substantial fees” to represent the interests of MCH investors, they failed to uncover investments in areas other than accounts receivable from medical providers. Among other things, the lawsuit alleges that investments were made in a 118-foot yacht, mobile phones and movie ventures.

Medical Capital investors should consider carefully whether they wish to remain in the class action or file an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA) to recover their investment losses. Among the facts to consider:

• Investors with significant losses are unlikely ever to be made
  whole in a class action.
• Class actions can sometimes take years before a resolution is reached. The FINRA arbitration process typically is completed in a much shorter period of time, often 15 months.
• Class action members are bound by the results of the class action decision.
• Many investors may have viable claims based on the
  unsuitability of their investments. Because a suitability claim is dependent on an
  individual’s circumstances, this claim cannot be prosecuted on a
  classwide basis.

If you are a Medical Capital investor and wish to discuss filing an individual arbitration claim with FINRA or have questions about your investment losses in Medical Capital notes, please contact us by leaving a message in the Comment Box below or via the Contact Us form.

Yield Plus and the words, Charles Schwab lawsuit, are becoming one and the same these days. Hundreds of investors have filed arbitration claims with the Financial Industry Regulatory Authority (FINRA) over charges the San Francisco brokerage made false and misleading statements about the Yield Plus Funds and the extent to which investments were made in high-risk, speculative mortgage-backed securities.

Last week, Charles Schwab announced it had received a Wells notice from the Securities and Exchange Commission (SEC), in which the regulator outlined plans to recommend civil enforcement charges against the company over two Schwab bond funds.

Adding to the Schwab’s legal troubles: In August, a federal court in San Francisco certified a class action lawsuit on behalf of about 250,000 Yield Plus shareholders.

The Schwab Yield Plus Funds – the Schwab Yield Plus Funds Investor Shares (SWYSX) and the Schwab Yield Plus Funds Select Shares (SWYPX) – were initially offered as an safe, conservative investment alternative to money market accounts. Contrary to those representations, however, Schwab managers invested more than 45% of the funds’ assets in the mortgage industry. When the housing market crashed, so, too, did the value of the funds.

In May 2007, Yield Plus had more than $13 billion in assets. By March 2008, it was down to $2.5 billion. Today it has about $210 million.

Our lawyers are actively advising individual and institutional investors concerning the Schwab Yield Plus Funds. We have created an alliance with other experienced securities arbitration lawyers. Learn more about your  Schwab Yield Plus Funds. Tell us about your Schwab Yield Plus investments by leaving a message in the comment box, or the Contact Us page. We will counsel you on your options.

Founded in 2001 by Wayne “Rob” Hannah III, TSG Real Estate LLC of Chicago has built a reputation for itself by taking on creative business ventures. Hannah, TSG’s president and CEO, is a former bond trader who later ventured into commercial real estate. Among other things, Hannah is credited with helping to develop an IRS Revenue Procedure on tenants-in-common (TIC) compliance with 1031 Exchanges and, in 2008, for spearheading plans to launch the nation’s first eco-friendly real estate investment trust (REIT), Green Realty Trust, Inc.

Along the way, Hannah garnered credit for something else: Allegations by investors and regulators of operating an investment vehicle to partly finance personal obligations. As reported March 9, 2009, by Crains Chicago Business, investors allege that Hannah used their money to help pay for a $5.2-million, 10,000-square-foot vacation home near Park City, Utah.

According to the article, that accusation follows several other allegations charging Hannah of mismanaging properties, misleading investors and violating Illinois securities laws. On Jan. 30, 2009, the Illinois Securities Department issued a temporary order (File No. 08-00157) prohibiting Hannah and TSG Real Estate from selling securities in the state of Illinois. Among the allegations outlined in the complaint, Hannah failed to inform new investors about charges stemming from two prior lawsuits.

In those lawsuits, Illinois regulators cite a number of allegations pending against Hannah and various entities for which he served as an officer or director, including violations of the Illinois Securities Law of 1953, violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, common law fraud, racketeering, mail and wire fraud, and conspiracy.

TSG Real Estate first established its niche in the real estate industry as a sponsor of tenants-in-common investments (TICs). Unlike real estate investment trusts, sponsors of TICs sell interests in individual properties. TIC investors then buy a percentage interest in the commercial or investment property, allowing them to invest in properties they might not otherwise be able to afford.

TICs were especially popular during the boom time of the real estate market in the 1990s. Today, however, amid a housing downturn and recession, many firms that sponsored TICs are hurting, and TSG in particular reportedly is beset with problems.

According to the Crain’s Chicago Business article, investors in about 15 TSG properties want TSG replaced as manager. As for the lawsuit involving Hannah’s Utah vacation home, the article cites allegations in the complaint that contend Hannah and TSG used money from a $13.4-million investment fund for unauthorized purposes. Those “purposes” reportedly included Hannah using more than $800,000 to pay back a loan to his father and nearly $5 million to finance the Utah vacation home, which was acquired by a TIC for his “friends and family.” Neither transaction was allowed under the fund’s operating agreement, the suit says.

More than 87% of the fund’s investors have voted to replace Hannah as the fund’s manager, and about 60 are named as plaintiffs in the suit.

If you have lost money because of investments related to TSG Real Estate or Wayne Rob Hannah III, we want to hear your story. Tell us about your situation by leaving a message in the Comment Box below or via the Contact Us form.

A warning from the Securities and Exchange Commission (SEC) in the form of a Wells Notice could have a direct impact on how Charles Schwab addresses current and future lawsuits and arbitration claims by investors who suffered losses in the  Schwab YieldPlus Funds.

The San Francisco-based brokerage acknowledged earlier this week that it had received the SEC’s Well Notice, which outlined possible civil enforcement actions against Schwab Investments, Charles Schwab Investment Management, Charles Schwab & Co., Inc. and the president of the YieldPlus funds for alleged violations of securities laws in connection to the two fixed-income mutual funds.

Companies that receive Well Notices are given a chance to respond to the SEC’s allegations before the commission decides whether to approve an enforcement action. The notice is not a formal allegation or finding of wrongdoing.

On Aug. 21, a California federal court certified an investor lawsuit involving the YieldPlus Fund Select Shares and YieldPlus Investor Shares as a class action. As reported Oct. 15 in an article by Investment News, the Oct. 14 Wells Notice plus other various supporting documents could very well serve as a road map for the class action lawsuit, which some analysts and attorneys contend dwarfs individual arbitrations by hundreds of millions, if not billions, of dollars.

Regardless of the outcome of the SEC’s investigation, Schwab YieldPlus investors are under a tight deadline to decide whether to stay in the class-action lawsuit or “opt out” if they wish to file an individual arbitration claim with the Financial Industry Regulatory Authority (FINRA). (Individuals are generally in a class action unless they formally ask to be excluded.)

The deadline to submit opt-out requests is Monday Dec. 28, 2009. In addition, investors must:

•Provide a written statement requesting exclusion from the Schwab YieldPlus class-action lawsuit;
•Sign and date the request and include your mailing address; and
•Ensure the written request is received by the Notice Administrator no later than Dec. 28, 2009. The address to mail the opt-out request is: Schwab Corp. Secs. Litigation Exclusion, c/o Gilardi & Co. LLC, P.O. Box 808061, Petaluma, CA 94975-8061.

Between Sept. 1 and Oct. 1, the date on which the most current available decision with FINRA is posted, Schwab has lost seven out of 10 YieldPlus FINRA arbitration cases, according to the Investment News article.

We are very interested in your situation with Schwab YieldPlus. Leave us a message in the comment box or the Contact Us form. We want to counsel you on your legal options.

Taking much-needed steps to strengthen investor protections, the House Financial Services Committee has begun the first of several congressional hearings on reforming the securities industry. Initial discussions concern the Investor Protection Act of 2009, with the focus on hedge fund registrations, the creation of an agency to oversee the insurance industry and a law to protect consumer investors. As part of the proposed legislation, the Securities and Exchange Commission (SEC) would be allowed to make fiduciary duty the standard for any broker/dealer or investment adviser who dispenses investment advice about securities.

“Over the years, full-service brokers have been allowed to portray themselves to the public as ‘financial advisers’… all without having to act in their clients’ best interests, which is the true hallmark of an advisory relationship,” said Barbara Roper, director of investor protection for the Consumer Federation of America, in a July 25 article appearing in the Salt Lake Tribune.

Currently, brokers/dealers are held to a suitability standard. They are required to make recommendations deemed generally “suitable” for an investor. Investment advisers, on the other hand, are subject to an overarching fiduciary duty under the Investment Advisers Act of 1940. As fiduciaries, they have a duty to act in the best interests of their clients and to make full and fair disclosure to clients regarding conflicts of interest. Broker/dealers do not.

The distinctions, albeit subtle, mean broker/dealers are, among things, free to receive higher commission and fees for recommending certain investments or financial products to clients, despite the fact another product may be a better option. At the same time, many broker/dealers market themselves as “advisers,” creating further confusion for investors.

According to a 2008 study commissioned by the SEC and conducted by the RAND Corporation, the majority of investors do not understand the distinctions between investment advisers and broker/dealers – even when those distinctions are explained to them.

On Oct. 8, during a second House Financial Services Committee hearing, the following question was posed to lawmakers: Which is the higher standard, fiduciary or suitability?

The six witnesses, each of whom represented a broad spectrum of the financial services industry, replied: The fiduciary standard.

If the past year of the Bernie Madoff debacle, the crisis on Wall Street and repeated charges levied by the SEC on several broker/dealers and financial advisers for allegedly operating “mini-Madoff” Ponzi schemes and other investment scams has taught us anything, it’s that advisers, financial planners and broker/dealers who dispense investment advice must be held accountable for their words and actions. A first step toward making this happen is imposing a fiduciary duty standard for all financial professionals.

The bottom line: Allowing investment advisers and broker/dealers to operate under different statutory and regulatory frameworks not only creates confusion in an already complex industry but ultimately renders a disservice to investors. Adoption and enforcement of a strict, universal fiduciary standard of care to broker/dealers, as well as investment advisers is a step in the right direction to restoring investor confidence in the financial services industry.

Tell us about your investment losses. Leave a message in the area below or on the the Contact Us form. We want to counsel you on your legal options.

Last year, the Montana State Auditor’s Office took a rather unusual approach to educate investors about the dangers of investment fraud. It teamed up with the AARP to produce Fraud Under the Big Sky, an hour-long documentary highlighting two major cases of securities fraud in Montana, including one that involved stockbroker Thomas J. O’Neill and Piper Jaffray & Co.

The O’Neill/Piper Jaffray case reveals how O’Neill “churned” the accounts of his clients, making an excessive number – more than 6,000 – of unauthorized trades in order to generate huge commissions for himself. Many of O’Neill’s clients were elderly. Evidence later showed that one of the victims was a 92-year-old man, who had seven speculative trades made in his account while in a coma. A final trade was conducted hours after he had died. O’Neill pleaded guilty in U.S. District Court in January 2005 to wire and securities fraud for activities from 1997 to 2001. In April 2005, he was sentenced to two years in prison for defrauding clients.

This year, in February 2009, O’Neill filed a lawsuit in a Butte district court against his former employer, accusing Piper Jaffray of destroying hand-written records while he worked for the firm that could have been used to help in his defense. The complaint also alleges that the records provide evidence that O’Neill had followed Piper Jaffray’s business plan and that the firm also reviewed and approved all of O’Neill’s transactions.

O’Neill’s complaint further accuses Piper Jaffray of knowing its business plan was fraudulent yet allowing him to continue implementing it.

Based in Minneapolis, Piper Jaffray’s origins date back to 1895. Over the years, the company evolved into one of the most powerful brokerage and investment firms in the United States. At the same time, however, Piper Jaffray also acquired a slew of investor complaints, regulatory sanctions and allegations of securities fraud, unauthorized trading and misuse of research for financial gain. On the latter allegation, Piper Jaffray reached a settlement in 2003 with the Securities and Exchange Commission (SEC), NASD, NYSE, NASAA, and the New York Attorney General and agreed to pay a $32.5 million fine.

Tell us about your situation with Piper Jaffray by leaving a message in the Comment Box below or via the Contact Us form. We want to counsel you on your legal options.

The list of brokerage firms facing arbitration claims from investors who suffered losses from investments in

The basis of the lawsuits against concerns breach of fiduciary duty, with claimants alleging that brokerages like Based in Tustin, California, Medical Capital purchases accounts receivables of medical providers and then packages them as private investments. Over a six-year period, the firm raised $2.2 billion from 20,000 investors.

In addition, the SEC says Medical Capital made a number of multimillion-dollar investments that had nothing to do with its core business of medical receivables. Among those investments:

• $20 million for “The Perfect Game,” a film about a group of Mexican youths who became the first non-U.S. team to win the Little League World Series in 1957;

• $7 million in a company that marketed a mobile phone application, which consisted of a live video feed of a hamster in a cage; and

• An unspecified amount for a 118-foot yacht called The Home Stretch.

If you have questions about your Medical Capital investments, please contact us. If Securities America, QA3 Financial Corp. or another brokerage has sold you Medical Capital notes, tell us your story by leaving a message in the Comment Box below or on the Contact Us form. We want to advise you on your legal options.