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.