Medical Capital Holdings: Investors File Claims Over Med Cap Notes

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.

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