Thomas A. Seaman, the Court-appointed receiver for Medical Capital Holdings, Inc. (“MCHI”), released his preliminary report on July 16, 2009. Although limited to 10 days, his findings indicate a complete forensic accounting is necessary, especially with regards to the activities of third parties who participated and benefited from business transactions with MCHI and its subsidiaries.

As alleged in the original compliant filed by the Securities and Exchange Commission (“SEC”), MCHI has defrauded investors by paying a large percentage of the offering proceeds raised to Medical Capital Corporation (“MCC”) in the form of administrative fees, when the Private Placement Memorandums (“PPM”) clearly indicated none of the capital raised would be used to pay administrative fees. The preliminary investigation on the current financial condition of the Medical Provider Funding Corporations (“MPs”) supports the SEC allegations. The following table, generated from the data collected by Mr. Seaman, shows the offering proceeds, the total amount of fees paid by each MP to MCC, and the cost paid to MCC as a percentage of the offering amount.

In addition to MCC receiving a percentage of the capital raised by the various MPs, the report brings to light various investments made by MCHI, and/or the MPs, which are not in compliance with the PPM issued to investors and the possibility that MCC is overvaluing collateral.

According to the PPM the offering proceeds were to be used for purchasing accounts receivables, however, the report indicates that MP IV owns an unverified percentage of The Perfect Game, LLC. The primary asset of this corporation being the rights to a film entitled The Perfect Game. Although the amount of  ownership has not been verified, MP IV has the majority of voting shares and records indicate more than $20 million was invested in or loaned to this venture.

As of June 30, 2009 MCC has reported collateral securing obligations to noteholders with a total value of over $1.1 billion, but in July 2009 MCC received only approximately $317,000 from the collection of accounts receivable. In his research of the MP II funding corporation, Mr. Seaman, discovered a loan made by MP II to facilitate the purchase of a senior living facility. The corporation who acquired the loan from MP II has since defaulted on the note and MCC has foreclosed on the property. Recently the property was part of a proposed sale with a proposed purchase price of $14.4 million. MCC has valued the property at $30 million. Findings such as these have led Mr. Seaman to recommend a detailed forensic accounting to verify the financial records of MCHI and all subsidiaries.

Investors should consider whether a securities arbitration claim filed with the Financial Industry Regulatory Authority, (FINRA) is an effective method to recover their investment losses. The brokerage firms who distributed the securities issued by Medical Capital Corporation and its affiliated entities were obligated to conduct due diligence of facts concerning the risks associated with the investments; their failure to do so resulted in investment losses for investors. In addition, Brokerage firms are obligated to give, and investors are entitled to rely upon, brokerage firms for competent, suitable investment advice in accordance with FINRA Rules and Regulations.  Recommendations of unsuitable investments and/or failure to conduct adequate due diligence are both causes of action that form the basis for securities arbitration claims filed with FINRA. Many investors were wrongly advised by their financial advisors that these securities were suitable for current income investment objectives.

The Securities Law Firm of Tramont Guerra & Núñez, PA, is a nationally recognized, Martindale Hubbell “AV” rated securities law firm.  To request a confidential consultation from a TGN attorney to assist you in determining whether you have a viable individual claim for investment losses that exceed $100,000 from a full service brokerage account, contact us on our website.  To speak directly with an attorney, call (800) 578-0137 and ask for Benjamin Fernandez, Esquire.