A former stockbroker in Colorado has been criminally charged with securities fraud for selling Medical Capital notes. The nine counts of securities fraud filed last Thursday by the Weld County District Attorney's Office against John Brady Guyette are believed to be the first such charges against a broker stemming from the collapse of Medical Capital Holdings Inc., a medical receivables firm that raised $2.2 billion from investors from 2003 to 2008 and allegedly operated as a Ponzi scheme.
The Securities and Exchange Commission charged Medical Capital and its two founders, CEO Sidney Field and president Joseph Lampariello, with fraud in July 2009, but the SEC brings only civil claims. Dozens of broker-dealers with independent-contractor representatives sold the notes, and about half of investors' money — about $1 billion — is gone, according to regulators.
Until now, the Justice Department had not brought charges against any individuals involved with Medical Capital.
Mr. Guyette, 71, is “the first guy charged that we're aware of,” said Colorado securities commissioner Fred Joseph. The state revoked Mr. Guyette's securities license in April 2010. At the time, the regulators alleged that Mr. Guyette sold Medical Capital private placements to a number of investors with whom he did not have a substantial prior relationship. That, attorneys said, put Mr. Guyette in violation of Regulation D, the federal securities law under which private placements are commonly offered.
Mr. Guyette, who did not return a call Monday afternoon to seeking comment about the charges, said in 2010 that he bought $205,000 of Medical Capital notes. Mr. Guyette's practice was based in Greeley, Colo., and he was affiliated with Community Bankers Securities LLC from 1997 to 2009. Community Bankers closed in December 2009.
According to the Weld County complaint and information, Mr. Guyette sold $1.3 million of MedCap notes to eight investors between August and December 2008. During that time, Medical Capital was beginning to unravel and had missed some payments to investors in previous note offerings.
At the center of the Weld County complaint against Mr. Guyette is the allegation that he sold Medical Capital notes to investors after the company began having trouble making payments to some investors.
The nine securities fraud charges include allegations of untrue statements or omissions by Mr. Guyette.
One investor, Lucille Linde, 92, reported losing her life savings in the investments, according to the complaint. She started investing in MedCap with Mr. Guyette in 2005, and in August 2008 invested $300,000 in Medical Capital VI.
“Linde reported that prior to writing the checks on Aug. 15, 2008, [she] had been told by a fellow MedCap investor, Borge Villemsun, that MedCap had been late in making principal and interest payments to [him],” according to the complaint. “Linde reported confronting [Mr. Guyette] with this information. Linde reported that [Mr. Guyette] assured [her] that Villemsun had been paid and that the MedCap VI investment was guaranteed safe.”
“Linde was not aware that when [she] wrote the checks on Aug. 15, 2008, MedCap II had failed to make principal and/or interest payments due to MedCap II investors. [Mr. Guyette] failed to disclose this information to Linde,” according to the complaint.