On July 16, 2009 the Securities and Exchange Commission (SEC) filed a complaint against Medical Capital Holdings Inc. (MCHI), Medical Capital Corporation (MCC), Medical Provider Funding Corporation VI (MP VI), Sidney M. Field, and Joseph J. Lampariello. The complaint alleged the defendants committed fraud in the offer and sale of notes in Special Purpose Corporations (SPCs), by misappropriation of funds and misrepresentation.

MCHI is a Nevada corporation that provides financing to healthcare providers by purchasing their accounts receivables and making secured loans to them. In order to fund this operation, MCHI sets up SPCs to raise money from investors. In 2001 the California Department of Corporations issued a Desist and Refrain order against MCHI, preventing MCHI from offering or selling securities in the state of California.

Since 2003 MCHI, and the above named defendants have raised over $2.2 billion through offering notes in several SPCs. The SEC has begun its investigation with MP VI. The findings are staggering; according to the complaint, as of June 19, 2009 the “defendants misappropriated approximately $18.5 million of the $76.9 million raised through the sale of MP VI notes.

Additionally, the SEC alleges misrepresentations in the offer and sale of MP VI and that MCHI misrepresented the allocation of the offering proceeds. In the Private Placement Memorandum, MP VI stated none of the proceeds from the sale would go towards the payment of administrative fees to MCC, instead proceeds from accounts receivables and other investments would cover that cost. However, according to the SEC, as of February 28, 2009 MCHI and its wholly owned subsidiaries had paid $21.7 million in administrative fees, a staggering $16.9 million dollars more than MP IV’s collections on receivables as of the same date. Investors, believing their investment was funding the purchase of more receivables, were really paying administrative fees to MCHI and its subsidiaries.

On August 3, 2009 the SEC obtained an emergency court order halting the $76.9 million offering based on the allegations of fraud perpetrated by the defendants. In addition to denying MCHI further access to investors, U.S. District Judge David O. Carter froze the assets of Medical Capital Holdings and its subsidiaries and appointed a temporary receiver.