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
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.