Stockbroker Arbitration Over Medical Capital Losses Results in $400K Award

An investor was awarded $400,000 in what is believed to be the first successful stockbroker arbitration claim over Medical Capital Holdings fund losses

The Financial Industry Regulatory Authority (FINRA) ruled on behalf of Marilyn Hazell, of Florida, on May 10, determining the Peak Securities Corporation, her former brokerage, violated federal securities laws by investing in Medical Capital Notes. Medical Capital, which provided the notes, is under investigation by the federal financial regulators for fraud.

In her Medical Capital stockbroker arbitration claim, Hazell charged Peak Securities Corporation with breach of contract, breach of fiduciary duty, negligence and common law fraud. According to a report by Investment News, Peak Securities never answered the claim, and lost its FINRA registration as a broker in November. FINRA issued a default decision in Hazell’s favor, agreeing on every count, and awarding her the full amount of her claim, which is rare.

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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, but has been charged with defrauding investors.

In July, the Securities Exchange Commission (SEC) filed charges against Medical Capital, indicating that it conducting a number of questionable transactions with itself, some of which appeared to include receivables that did not actually exist. The SEC also indicated that the company made investments that 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 a movie.

The SEC claims that Medical Capital took $25 million in administrative fees from one of its funds, Medical Provider VI. However, the fund only brought in about $5 million in medical receivables.

It is estimated that about $1 billion in investor money was wiped out by Medical Capital’s actions. In November, a Medical Capital class action lawsuit was filed on behalf of all persons or entities who purchased investment notes issued by Medical Provider Financial Corp. III, Medical Provider Financial Corp. IV, Medical Provider Funding Corp V or Medical Provider Funding Corp VI, commonly referred to as Medical Capital Notes, from Capital Financial Services, National Securities Corp., Cullum & Burks, Securities America, Ameriprise Financial or CapWest Securities on or after September 18, 2006.

The class action lawsuit over Medical Capital Notes alleges the brokerage firms violated federal securities laws by selling notes that were not registered with the SEC. The lawsuit also alleges that Medical Capital investments were misrepresented due to false and misleading information given out about the track records, the qualifications of those managing the company and the overall risks of the investments.

A number of investors, like Hazell,  have filed individual Medical Capital lawsuit arbitration claims against their brokers through the Financial Industry Regulatory Authority (FINRA) to recoup their losses. The claims allege that through basic due diligence, brokerage firms should have discovered the Medical Capital fraud and irregularities.


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