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Medical Capital Holdings

Medical Capital Holdings Faces SEC Securities Fraud Charges; Assets Frozen

On July 16, 2009, the Securities and Exchange Commission, SEC filed fraud charges against Medical Capital Holdings in connection to sales of $77 million of private securities in the form of notes. Among the charges, the SEC accuses the medical receivables firm of lying to backers as it allegedly raised and misappropriated millions of dollars of investors' money while failing to disclose information about $1.2 billion in outstanding notes and $993 million in notes that had entered default.

The SEC's complaint further alleges that Medical Capital, based in Tustin, California, may have committed the fraud as far back as 2003.

On the same day the SEC filed charges against Medical Capital, the Financial Industry Regulatory Authority (FINRA) issued a sweep notice to obtain information from an undisclosed number of broker-dealers regarding sales of Medical Capital securities.

Responding to the SEC's fraud complaint, U.S. District Judge David Carter ordered Medical Capital Holdings to remain under a court-appointed receiver, Thomas Seaman, along with its subsidiaries and affiliates. Those affiliates include Medical Capital Corp. and Medical Provider Funding VI. Judge Carter also has permanently froze the assets of Medical Capital Holdings, its affiliates and two of its executives: CEO Sidney Field and Joseph Lampariello, president and chief operating officer.

As reported Sept. 9 by the Orange County Register, a recent report by the receiver in the Medical Capital case sheds further light on the inventory and quality of MedCap's assets:

  • Of some $80 million in verified accounts receivable, $74 million is more than 180 days old.

  • An additional $543 million – 87% of all the accounts receivable on Medical Capital's books – are “non-existent.” While the receivables may have existed at one time, according to the receiver, “there have been no collections or advances on these accounts for many years.”

  • One of Medical Capital's biggest real estate holdings, Parkway Hospital in Forest Hills, New York, shut down months ago after declaring bankruptcy and losing its operating license. Medical Capital invested $65 million in Parkway.

  • Another hospital owned by Medical Capital, Legacy Medical Center in Atlanta, closed its doors in January. Medical Capital had invested $36.6 million in that facility.

Meanwhile, Integrated Healthcare Holdings (IHH), formerly one of Medical Capital's biggest customers, wants to sue Seaman, as the receiver, and Lampariello for fraud. IHH, which operates Western Medical Center-Santa Ana and three other central Orange County hospitals, contends Medical Capital embezzled $12.1 million from the hospital chain.

The securities law firm of Maddox Hargett & Caruso P.C. currently is investigating the sales practices and due diligence of broker-dealers who solicited investors to purchase Medical Capital Holdings' private securities in the form of notes. If you are a retail or institutional investor and sustained investment losses related to Medical Capital Holdings, contact our securities fraud team. We can evaluate your situation to determine if you have a claim.

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