Medical Capital Losses Lead to Investor Arbitration Claims and Lawsuits

Several brokerage firms face potential arbitration claims and stock fraud lawsuits from investors who suffered losses in Medical Capital investments, as the Securities and Exchange Commission (SEC) has filed fraud charges against Medical Capital Holdings in connection with the sale of private securities.

Investor claims filed with the Financial Industry Regulatory Authority (FINRA) allege that through basic due diligence, brokerage firms should have discovered the Medical Capital fraud and irregularities that are now being investigated.

Medical Capital was set up to purchase accounts receivables of medical providers and package them as private investments. The firm raised $2.2 billion from 20,000 investors over a six year period.

In July, the Securities Exchange Commission leveled charges of fraud against Medical Capitol, saying it has defrauded investors of millions of dollars. In a report filed earlier this month as part of the SEC Medical Capital lawsuit by a court-appointed receiver, Medical Capital conducted a number of questionable transactions with itself, some of which appeared to have included receivables that did not actually exist.

The report also indicated that the company swapped old receivables to new investment entities, despite the fact that receivables lose value with age, and also accused the company of overstating the value of some of its receivables.

In addition, the company allegedly made a number of investments into things which had nothing to do with medical receivables, such as investing $7 million into a mobile phone application consisting of live video feed of a hamster in a cage, and $20 million into the movie “The Perfect Game” about the first Mexican team to win the Little League World Series.

An Illinois couple who filed a FINRA arbitration claim against their brokerage, QA3 Financial Corp, is seeking to recoup $500,000 in Medical Capital losses and losses from other private placements. The claimants say that QA3 should have been able to discover that there were problems with Medical Capital by performing even the most basic investigation, and the statement of claim alleges fraud, deceptive practices, negligence and misrepresentations and omissions led to the losses.

The claim is one of several Medical Capital related lawsuits that are being investigated throughout the country by stock fraud lawyers against brokerage firms, which were receiving a due diligence fee in addition to their commissions when selling Medical Capital notes.