Medical Capital Holdings (MedCap) and Securities America

Napoli Bern Ripka, LLP is currently seeking clients who have incurred losses investing in Medical Capital Holdings. In July 2009, the Securities and Exchange Commission (SEC) sued Medical Capital for fraud, claiming that the company misappropriated $18.5 million of investors’ money and misrepresented its own business records by covering up various defaults.  According to the SEC, Medical Capital raised some $2.2 billion since 2003 from more than 20,000 investors. Instead of using the money for its core business, which entails packaging medical receivables and selling them as private placement offerings to investors, Medical Capital is accused of investing in such things as a Hollywood film, a mobile phone application company, and a 118-foot yacht. A court-appointed receiver subsequently revealed that most of the account receivables on MedCap’s books did not exist, while others were seriously overvalued. The SEC also charged that Medical Capital transferred over $800 million of receivables from one series of notes to another.

Investors have brought action against Securities America in connection with sales of Medical Capital Holdings, alleging that Securities America failed to protect them from the alleged fraud committed by Medical Capital. Clients of Securities America were marketed Medical Capital related notes (Medical Provider Financial Corp. III, Medical Provider Financial Corp. IV, Medical Provider Funding Corp. V and Medical Provider Funding Corp. VI) as safe and secure investments, appropriate for clients who were retired, and as non-speculative investments. Investors claim that even the most basic due diligence would have uncovered the accounting irregularities occurring at Medical Capital. Allegedly, Securities America benefited from millions of dollars in commissions from sales of Medical Capital at the expense of its clients.

Securities America is a subsidiary of Ameriprise Financial. Both companies are named as defendants in a class action lawsuit, alleging misrepresentation, omissions, negligence, and violation of Nebraska securities laws in the promotion and sales of Medical Capital notes to investors. The lawsuit seeks class action status to represent investors who bought the notes from Nov. 21, 2007, through July 31, 2008. Amidst this class action suit, along with arbitration claims, other lawsuits, and complaints by regulatory bodies related to the firm’s sales of Medical Capital private placements, Securities America CEO Steve McWhorter resigned on January 21, 2010. Shortly after, Massachusetts regulators sued Securities America on January 26, 2010, claiming it misled investors about the risks involved in the Medical Capital Notes and the financial health of the issuer, Medical Capital Holdings. According to the complaint, 400 Securities America advisers allegedly sold $700 million of the private placements, half of which are now in default. The $700 million sold by Securities America represents 37% percent of the $1.7 billion in notes that MedCap issued. Securities America was accused of committing securities fraud through material omissions and misleading statements. The company continued to sell the notes to investors even after a senior-level company officer expressed concerns about Medical Capital and its fiscal health.

In addition to Securities America, other broker/dealers such as QA3 Financial Corp., National Securities Corp., CapWest Securities, Independent Financial Group LLC, Investors Capital Corp., and Centaurus Financial are also being investigated for investors’ losses in Medical Capital Holdings. Brokerage firms and their "due diligence committees" failed to perform even the most basic analysis and investigation into Medical Capital and its chief principal, Sidney Field. Prior to joining Medical Capital as the firm’s CEO, Sidney Field supervised agents who allegedly employed a deceptive practice known as “sliming” to sell automobile insurance policies. The agents would alter accident records of questionable drivers, falsify information about car values and commute mileage so that an applicant could qualify for insurance coverage. His former firm, FGS, also allegedly duped customers into paying interest rates of 20 percent to 40 percent when they financed their premiums. In August 1990, the Department of Insurance sued Field for civil racketeering and ultimately revoked his license. Three years later, Field was sued for fraud and paid $100,000 to settle that lawsuit. A basic background check should have uncovered Field’s history of fraud and the rampant fraud taking place at Medical Capital.

Given the fact that the private placement field historically has been infected with fraudulent practices in the past, the brokerage firms selling Med Cap notes are at fault for not performing due dillegence on Medical Capital and Med Cap executives. If you lost money related to an investment in Medical Capital Holdings, please do not hesiate to contact us to discuss your potential claim.