The U. S. Securities and Exchange Commission has accused Medical Capital Corporation (MCC), Medical Capital Holdings, Inc (MCHI) and Medical Provider Funding Corporation VI (MP VI) (collectively, “Medical Capital”) of securities fraud. Specifically, the SEC has alleged in a lawsuit that Medical Capital defrauded investors by misappropriating about $18.5 million of investor funds and by misrepresenting that no prior Medical Capital securities offerings had defaulted on or been late in making payments to investors of principal and/or interest. According to the court-appointed receiver’s report, the fraud could be even greater.

Medical Capital is a company that packaged medical receivables and sold them as private placements. The SEC’s lawsuit alleges that, since 2003, Medical Capital has raised more than $2.2 billion through private securities offerings in the form of notes, and that since August 2008, nearly $1 billion of the notes have been in default or were late in paying principal and/or interest. Investors stand to lose millions of dollars.

The SEC has accused Medical Capital of defrauding investors by misappropriating approximately $18.5 million of the $76.9 million raised through private securities offerings to pay administrative fees. The complaint alleges that the offering documents stated that administrative fees would not be paid out of proceeds from the sale of the investment notes. The SEC’s complaint also alleges that the defendants defrauded investors by misrepresenting that no prior notes had defaulted on or had been late in making principal or interest payments. In fact, four prior investments had defaulted.

According to a report by Medical Capital’s court-appointed receiver, Medical Capital spent lavishly on assets that had nothing to do with medical receivables, including $20 million on a Hollywood movie, $7 million on a mobile-phone application that consisted of a live video feed of a hamster in a cage; and an unspecified amount for a 118-foot yacht. The receiver’s report also claims that some of the receivables that Medical Capital packaged into the private placement notes were overvalued and some did not exist at all.

According to a securities industry publication, Medical Capital securities were sold to investors by a number of brokerage firms, including Securities America, Inc., Capital Financial Services, CapWest Securities Inc., Okoboji Financial, and QA 3 Financial. Based on discussions that our lawyers have had with Medical Capital investors, many brokers and brokerage firms sold the investments as safe, income-producing investments. But many of those investors have stopped receiving any income payments.

Dimond Kaplan & Rothstein, P.A. [] currently represents Medical Capital investors and expects to file a number of FINRA securities arbitration claims and/or lawsuits against brokerage firms that sold Medical Capital investments in an effort to recover clients’ investment losses. The firm believes that many brokerage firms failed to perform adequate due diligence before recommending and selling the Medical Capital investments. DKR also believes that the brokerage firms that sold the investments misrepresented facts about the investments. Under federal and state laws, all risks and material information must be disclosed to investors.

Dimond Kaplan & Rothstein, P.A. is an AV-rated, nationally recognized law firm with extensive experience representing investors throughout the United States and Latin America in investment fraud and stockbroker and brokerage firm negligence cases. If you lost money in Medical Capital investments, please contact attorney Jeffrey B. Kaplan of Dimond Kaplan & Rothstein, P.A. at (888) 578-6255 or for a free case evaluation. You also may visit the firm on the web at [] or [].

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