CHICAGO, Aug. 21, 2009 (GLOBE NEWSWIRE) -- Stoltmann Law Offices announces that it has filed a Financial Industry Regulatory Authority (FINRA) arbitration statement of claim on Thursday involving investment losses in Medical Capital related investments. The Statement of Claim also seeks to recover investment losses in three other private placements, including DBSI Inc., IMH Secured Loan and Provident Royalties/Shale Royalties. The claim, seeking to recover $500,000 in investment losses, was filed on behalf of an Illinois farmer and his wife. It is believed to be the first filed arbitration claim or lawsuit in the country against a brokerage firm for losses sustained in Medical Capital.
The arbitration Statement of Claim alleges fraud, deceptive practices, negligence and misrepresentations and omissions, according to Chicago securities attorney Andrew Stoltmann, of Stoltmann Law Offices in Illinois. Stoltmann's firm filed the Statement of Claim with FINRA.
According to attorney Andrew Stoltmann, "The four private placements purchased by the Claimants were highly illiquid and extremely risky. The private placements were more appropriate for a hedge fund and not for the conservative investments the Claimants were looking for. The fraud associated with Medical Capital, as alleged by the Securities and Exchange Commission, was extraordinarily egregious. It appears as though even basic due diligence by the brokerage firms should have uncovered this alleged fraud. Brokerage firms were receiving a 1% due diligence fee on top of commissions of approximately 9% in the Medical Capital notes. Clients were relying on brokerage firms like QA3 Financial and Securities America to do the due diligence on these investments. The firms failed the clients and the results were an economic cataclysm."
According to the Statement of Claim, Medical Capital Corporation intended to purchase accounts receivables of medical providers and then make secured loans to them. Medical Capital then created special purpose corporations in which investors could invest money in these Med Cap notes (such as MPFC V and MPFC VI). The notes were sold as private placements under Rule 506 of Regulation D to "accredited investors." The investors would provide capital for the notes, and then the investor would expect to get some of the profits. The investors expected to receive monthly interest payments and return of their principal investment when the notes became due.
Unfortunately, according to the statement of claim, Medical Capital invested in more than just medical receivables, its core business. This money was also invested in movies (including $20 million for the "The Perfect Game," a film about a Mexican youth Little League baseball team), cellular phone companies (including $7 million in company that marketed a mobile-phone application that consisted of a live video feed of a hamster in a cage), and in one instance, a 118-foot yacht. Also, many of the receivables that Medical Capital invested in appeared to be old, meaning that there was less likelihood of payment.
Moreover, the SEC has alleged that some of the receivables were non-existent, and some were seriously over-valued by Med Cap. The SEC also alleged that Med Cap was transferring receivables from one series of notes to another (such as from MPFC I to MPFC III), amounting to nearly $829 million in these transfers. The fraud was clearly rampant in these notes, but the brokerage firms selling the investments performed very little due diligence into these issues.
The claim, filed against QA3 Financial Corp., seeks recovery of investment losses of $500,000 along with attorney's fees, interest and punitive damages. Stoltmann Law Offices expects to file another 20 claims against various brokerage firms in the near future involving Medical Capital Corporation, Medical Capital Holdings, Inc and Medical Provider Funding Corporation IV, V and VI.
Mr. Stoltmann also warned, "Unfortunately, class action lawyers will likely file class actions lawsuits in the near future. Clients are encouraged to consider all of their legal options. Often, class action settlements are very paltry and the recoveries tend to be small."
For more information on the award, please contact Andrew Stoltmann.