Category Archives: Medical Capital Holdings

Weighed down by sales in Medical Capital Holdings and other failed private placement deals, more broker/dealers are closing their doors. At least nine B-Ds have gone out of business this year.

In 2005, 5,111 broker-dealers were registered with the Financial Industry Regulatory Authority (FINRA); today, the number of firms has declined by 8.2% to 4,693.

A number of reasons are behind the recent broker/dealer closures, including the current economy, as well as regulatory pressure from FINRA and the Securities and Exchange Commission (SEC). For many of the recently shuttered brokerages, however, their fate has been sealed by sales in Medical Capital Holdings.

In July 2009, the SEC charged Medical Capital with fraud in connection to the sale of private placements. In total, the Tustin, California, lender raised $2.2 billion in investor money and sold private placements known as Medical Capital notes through dozens of broker/dealers. More than half of investors’ money is now gone.

Chicago Investment Group, a broker/dealer with approximately 90 brokers and $200 million in client assets, is the latest broker/dealer set to close its doors. As reported June 29 by Investment News, the company revealed last week it did not have enough capital on hand to meet industry rules to remain open for business.

GunnAllen Financial. Cullum & Burks Securities. Okoboji Financial Services. Jesup & Lamont Securities. All are independent broker/dealers that have either faced net-capital violations or been shut down by regulators after their capital levels were deemed too inadequate to continue doing business.

Jesup & Lamont Securities is one of the latest broker/dealers facing a capital crunch. On June 18, FINRA ordered the company and its 300 reps to cease business operations other than liquidating transactions. According to a June 27 Investment News article, the problem may stem to pressure from the SEC regarding sales of $11 million in private shares of Jesup & Lamont’s stock.

Jesup & Lamont is not alone. As reported in the Investment News story, a number of broker/dealers are dealing with capital requirement issues these days as a result of the market downturn of 2008 and early 2009. Broker/dealers also share something else in common: Many are facing legal liabilities from private-placements deals that have gone bust. Two of the most prominent cases involve Medical Capital Holdings and Provident Royalties LLC.

Last summer, the Securities and Exchange Commission (SEC) brought a fraud lawsuit against Provident Royalties and its related business entities. In the complaint, the SEC charged Provident with selling fraudulent private-placement offerings from September 2006 through January 2009. According to SEC documents, Provident raised $495 million from at least 7,700 investors throughout the country.

That same summer the SEC also initiated a fraud lawsuit against Medical Capital Holdings. In its fraud complaint, the SEC alleges that Medical Capital had more than $543 million in phony receivables on its books and had lost more than $315 million on various loans. Meanwhile, the company reportedly collected $323 million in fees for managing the money-losing loans.

The SEC also accuses Medical Capital of running a Ponzi scheme operation. According to the SEC complaint, Medical Capital was selling receivables at a markup among the various funds it controlled and then using money from newer investors to pay investors in the older funds.

A recent Medical Capital win by an investor over soured private placement deals is an encouraging sign for other investors with similar losses. The $400,000 award, which was issued May 10 and reported June 1 by Investment News, appears to be the first successful claim against a broker/dealer for selling Medical Capital investments.

The investor in the case was Marilyn Hazell, who filed her complaint against broker/dealer Peak Securities of Largo, Florida. In the complaint, Hazell cited breach of contract, breach of fiduciary duty, negligence and fraud.

Private placements in Medical Capital are at the center of a July 2009 fraud complaint by the Securities and Exchange Commission (SEC). In its complaint, the SEC charged Medical Capital Holdings with fraud in the sale of $77 million in notes. According to the SEC, Medical Capital told investors that any funds raised from its private placement deals would be invested in medical receivables. Instead, the SEC alleges that the company took $25 million in administrative fees for one fund, Medical Provider VI.

Federal prosecutors also have opened a criminal investigation of Medical Capital’s officers: Sidney M. Field and Joey Lampariello. In late May, U.S. District Judge David O. Carter agreed to let them tap more than $100,000 in previously frozen assets so they could hire criminal defense attorneys.

As reported in the June 1 Investment News article, Medical Provider Funding VI is the last in a series of offerings that raised $2.2 billion from investors. About $1 billion in investors’ money has reportedly been wiped out.

Since then, many investors have filed arbitration claims against the broker/dealers that sold them Medical Capital notes.

Peak Securities lost its registration with FINRA in November.

Maddox Hargett & Caruso P.C. continues to file arbitration claims with the Financial Industry Regulatory Authority (FINRA) on behalf of investors who suffered investment losses in Medical Capital. If you purchased Medical Capital Notes from a broker/dealer and wish to discuss your potential rights for recovery, contact us.

Medical Capital fraud is on the minds of many investors. The shuttered lender, based in Tustin, California, has left thousands of investors in financial straits, with many still asking how it happened and why regulators didn’t do a better job of scrutinizing sales of private placements.

Private placements are stocks, bonds or other instruments that a corporation issues to investors outside of the public markets. Because the issuing companies don’t have to register private placements with the Securities and Exchange Commission (SEC), these investments are considered riskier than traditional securities.

Medical Capital Holdings operated its business by providing funds to financially troubled hospitals and health-care facilities. Once it secured the unpaid bills, or receivables, of those companies, interests in the receivables were sold to investors in the form of private placement securities called Medical Capital Notes.

From 2003 to 2009, through a group of special-purpose subsidiaries, Medical Capital Holdings issued more than $2.2 billion of Medical Capital Notes to some 20,000 investors across the country. By the time the Securities and Exchange Commission (SEC) sued Medical Capital for fraud in July 2009, Medical Capital had more than $543 million in phony receivables on its books and had lost $316 million on various loans. Meanwhile, the company had collected $323 million in fees for managing money-losing loans.

The SEC also uncovered the makings of a massive Ponzi scheme at Medical Capital. The scam ultimately would be called one of largest alleged Ponzi schemes in the history of Orange County, California. According to the SEC, Medical Capital was selling receivables at a markup among the funds it controlled and using money from newer investors to pay investors in the older funds.

In addition, the SEC says Medical Capital spent $4.5 million on a 118-foot yacht called the Home Stretch and another $18.1 million on unreleased movie about a Mexican Little League team.

In March 2010, federal prosecutors launched a criminal investigation into two key executives at Medical Capital: CEO Sidney M. Field and President Joseph J. “Joey” Lampariello. Interestingly, Field had previous run-ins with regulators. In the early 1990s, he was essentially ousted from the auto insurance industry after California insurance regulators sued him for fraud and revoked his license.

Adrian Cross invested more than $1 million of her “nest egg” money in private placement securities issued by Medical Capital and another company, Provident Asset LLC. As reported in a March 27, 2010, article in the Wall Street Journal, the former schoolteacher made the investment on the recommendation of the broker/dealer she trusted: Securities America. When Medical Capital and Provident Royalties collapsed in 2009, Cross’s investment was wiped out.

“I felt gutted like a fish,” Cross said in the Wall Street Journal article. “He had pushed it as a safe alternative to stocks.”

Cross isn’t alone. Hundreds of other Medical Capital investors express similar sentiments. Many have filed arbitration claims with the Financial Industry Regulatory Authority (FINRA), accusing their broker/dealer of misrepresenting private placements in companies like Medical Capital as safe and secure.

In January, Massachusetts Secretary of State William Galvin brought the first state enforcement case against Securities America over sales practices regarding Medical Capital. Among the charges, Galvin alleges that Securities America representatives failed to disclose certain risks to customers, many of whom were retirees.

The case is awaiting a hearing.

Maddox Hargett & Caruso P.C. continues to file arbitration claims with FINRA on behalf of investors who suffered investment losses in Medical Capital. If you purchased Medical Capital Notes from a broker/dealer and wish to discuss your potential rights for recovery, contact us today.

Investor complaints regarding private placements – including those linked to Medical Capital Holdings – have prompted several state and federal investigations into the private placement sales practices of broker/dealers across the country. In many instances, the investigations have revealed a significant lack of regulatory compliance.

In response, the Financial Industry Regulatory Authority (FINRA) has published new guidance for FINRA-registered firms about their obligations when it comes to customer suitability, disclosures and other requirements for selling private placements to customers. Specifically, FINRA Regulatory Notice 10-22 reinforces and details a broker/dealer’s obligation to conduct a reasonable investigation of an issuer and the securities that are recommended in its offerings.

The Notice also highlights private placement red flags and supervisory requirements, and suggests practices to help ensure that firms adequately investigate the private placements that they recommend.

Private placements under Regulation D are usually sold to “accredited” investors and a limited number of non-accredited investors. While accredited investors must meet certain income or asset tests, the Notice emphasizes that a broker/dealer’s suitability obligations require it to conduct a reasonable investigation whenever it makes a recommendation in a private placement under Regulation D.

“An increase in investor complaints regarding private placements, as well as SEC actions halting sales of certain private placement offerings, led FINRA to launch a nationwide initiative that involves active examinations and investigations of broker-dealers engaged in retail sales of private placement interests,” said FINRA Chairman and CEO Rick Ketchum, in a statement.

“That initiative has uncovered misconduct, including fraud and sales practice abuses. While several enforcement actions have been taken and additional investigations are underway, FINRA is taking this opportunity to remind firms of their substantial duties when engaging in the sale of private placement offerings,” he said.

FINRA has brought three enforcement actions in recent months involving private placement offering violations. The actions include a complaint charging McGinn, Smith & Co. and its president with securities fraud in the sales of tens of millions of dollars in unregistered securities; the expulsion of Dallas-based Provident Asset Management for marketing a series of fraudulent private placement offered by an affiliate in a massive Ponzi scheme; and fines totaling $750,000 against Pacific Cornerstone Capital and its former CEO for failing to include complete information in private placement offering documents and marketing material, as well as for advertising violations and supervisory failures.

News involving Medical Capital fraud recovery has been on the minds of thousands of investors following a July 2009 lawsuit filed by the Securities and Exchange Commission (SEC) that accuses the Tustin-based company of securities fraud. In the lawsuit, the SEC alleges that Medical Capital misappropriated about $18.5 million of investor funds and misrepresented certain financial facts about the investments, otherwise known as Medical Capital Notes.

In March 2010, federal prosecutors launched a criminal investigation into two executives with ties to Medical Capital Holdings: Medical Capital CEO Sidney M. Field and President Joseph J. “Joey” Lampariello. Both Field and Lampariello were sued by the SEC in August 2009 for securities fraud.

A number of broker/dealers that sold Medical Capital investments also are facing regulatory scrutiny and lawsuits. At the top of the list is Securities America, which was sued in January 2010 by the Commonwealth of Massachusetts. According to the complaint, a number of Securities America reps allegedly misled investors about investments in Medical Capital and failed to disclose the risks associated with the investments.

The Massachusetts lawsuit further alleges that between 2003 and 2008, a group of Securities America executives repeatedly failed to heed the warning of an outside due-diligence analyst regarding the risks of the Medical Capital investments.

One Securities America rep facing legal troubles is William Glubiak, who’s been named in a $7.7 million complaint from about 24 households of investors who purchased investments in Medical Capital Holdings.

Another leading Securities America adviser involved in litigation connected to Medical Capital is Paula Dorion-Gray. In November 2009, Dorion-Gray was cited in a $254,000 complaint.

As for Securities America, it vigorously disputes the allegations of the Massachusetts Securities Division and contends that Massachusetts regulators don’t understand the workings of private placements and Regulation D offerings.

Maddox Hargett & Caruso P.C. continues to file arbitration claims with the Financial Industry Regulatory Authority (FINRA) on behalf of investors who suffered investment losses in Medical Capital. If you purchased Medical Capital Notes from a broker/dealer and wish to discuss your potential rights for recovery, contact us today.

Medical Capital Holdings broker John B. Guyette has surrendered his securities license to practice business in Colorado over what regulators say was a violation of state and federal securities laws regarding sales of private placements in Medical Capital Holdings. Guyette also is no longer registered with the Financial Industry Regulatory Authority (FINRA).

Colorado regulators allege that Guyette sold the private placements to a number of investors with whom he did not have a prior relationship, which is a violation of Regulation D. Regulation D is the federal securities law under which private placements are offered.

“I surrendered my license; I did not lose it,” said Guyette, who contends that he personally invested more than $200,000 in Medical Capital notes. “I voluntarily resigned rather than take this to the next level [court]. I decided not to fight this, and retired,” he said in an April 13 story in Investment News.

Guyette neither admitted nor denied the allegation by Colorado regulators, but nonetheless agreed to the order.

Private placements have come under fire by state and federal regulators following a 2009 announcement by the Securities and Exchange Commission (SEC) to file fraud charges against Medical Capital Holdings. According to the SEC’s complaint, Medical Capital allegedly operated much like a Ponzi scheme.

Since 2003, Medical Capital raised $2.2 billion from six private placement offerings to 20,000 investors nationwide. Things started to go haywire in the summer of 2008, when many Medical Capital borrowers began defaulting, which resulted in late interest payments to investors throughout 2009. Since then, investors have filed several complaints against Guyette alleging losses of $600,000.

Guyette and his business partner, Tom Miller, sold Medical Capital securities through Elite Investments; other broker/dealers marketed and sold the placements through CapWest Securities in Greeley.

Guyette remains licensed to sell securities in California, Illinois and Wyoming. According to an April 13 article by American Chronicle, Guyette sayshe has no plans to fight the state of Colorado for the return of his license or move to states where he is licensed.

Private placement offerings and leveraged ETFs (exchange-traded funds) are among the investments that con artists turn to as a way to scam innocent victims. Private placements in particular have been in the news lately, with their issuers – i.e. Medical Capital Holdings and Provident Royalties – accused of committing fraud.

As reported April 9 by CNBC, it’s become increasingly commonplace for investors to find themselves a victim of an investment scam or con. According to the North American Securities Administrator Association (NASAA), senior citizens are the No. 1 target for fraud, with baby boomers ranking a close second. In 2008, the FBI estimated that some $40 billion was lost to securities and commodities fraud.

In addition to private placement offerings, leveraged ETFs rank high in terms of potential abuse for fraud. While legitimate financial products, ETFs are complicated investments that trade on a daily basis. ETFs use exotic financial instruments, including derivatives, to generate better returns than the market return. This potential volatility, along with the increased exposure to risk, may make ETFs an unsuitable investment for most retail investors.

The best way to prevent fraud is to do your homework. If you suspect a deal is too good to be true, contact your state securities regulator. You also can find out if the person selling the offering or investment is registered with the Financial Industry Regulatory Authority (FINRA) on FINRA’s BrokerCheck Web site.

Another red flag to be aware of: Guarantees of a high rate of return on unregistered securities.

Private placements, which have made news in connection to Medical Capital Holdings and Provident Royalties, are becoming an increasingly questionable investment for ordinary investors.

Private placements are securities in stocks, bonds or other instruments that a corporation issues to investors. The investments are riskier than traditional securities because many of the issuing companies don’t have to register their placements with the Securities and Exchange Commission (SEC).

Former schoolteacher Adrianne Cross found this out the hard way. According to a March 27 article in the Wall Street Journal, Cross, 64, invested her life savings in private placements. She thought the investments were safe. Now she’s lost everything.

According to the Wall Street Journal, Cross’ broker worked for Ameriprise Financial’s Securities America unit in Los Angeles. Cross says the broker persuaded her to invest more than $1 million in private-placement securities issued by Medical Capital Holdings and Provident Royalties LLC in 2007. The broker allegedly told Cross that the investments were a safe alternative to stocks.

The Securities America broker was wrong. Both Medical Capital and Provident Royalties, which face fraud charges by the SEC, collapsed in 2009. For Cross and thousands of other investors, it meant their investments became essentially worthless.

Cross has since filed an arbitration claim with the Financial Industry Regulatory Authority (FINRA) in an attempt to recover her losses.

In January, Massachusetts’ Secretary of State William Galvin brought the first state enforcement case against Securities America over the broker/dealer’s sales practices of Medical Capital securities. According to the complaint, Securities America’s representatives failed to disclose the risks to customers, many of whom were retirees.

If you have a story to tell involving Medical Capital Holdings, Securities America and/or Provident Royalties, please contact a member of our securities fraud team.

Medical Capital losses tied to ill-fated deals involving private placements have investors on edge – and with good reason. Investors are owed upwards of $1 billion, according to the court-appointed receiver in charge of inventorying Medical Capital’s assets.

Medical Capital is accused of operating a Ponzi scheme. In July 2009, the company was charged with securities fraud by the Securities and Exchange Commission (SEC). Among the SEC’s allegations: Medical Capital Holdings lied to financial backers when it raised and allegedly misappropriated millions of dollars without revealing the fact that $1.2 billion in notes were outstanding and that $992.5 million in notes had entered into default or resulted in late payment of both principal and interest.

The SEC’s complaint went on to state that Medical Capital and its subsidiaries – Medical Capital Corp. and Medical Provider Funding Corp. VI – 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 named Medical Provider Funding Corp. I, II, III, IV and V.

Now it turns out that many of the receivables never existed or were highly overvalued. For investors, that means they bought non-existent investments.

One of those investors is Dr. Douglas Armbrust of Greeley, Colorado. As reported in a March 28 story by The Greeley Tribune, Armbrust’s broker allegedly told him that he was getting a “slam-dunk investment” with the Medical Capital’s private placement offerings. Armburst, a retired radiologist, believed him, and he got his 94-year-old mother involved and then some friends.

“She was more cautious than I,” Armbrust said of his mother, who lives in Ohio. “She said, ‘Doug, you’re going to lose all your money on this.’ ”

According to the story, Armbrust estimates he has lost $750,000 in the investments.

Armburst is one of many Greeley, Colorado, residents who apparently lost money in Medical Capital, which were sold by at least two local investment firms, Elite Investments and CapWest Securities.

Thousands of other Medical Capital investors are facing a similar predicament. Maddox Hargett & Caruso P.C. is investigating a number of complaints from investors regarding Medical Capital Holdings and the broker/dealers that sold them the investments. If you have investment losses related to Medical Capital, please contact us. A member of our securities fraud team will evaluate your situation to determine if you have a viable claim for recovery.