Ponzi scheme wiped out almost $1B in investor money
It looks like jail time for one of the principals of Medical Capital Holdings Inc., the fraud that destroyed dozens of broker-dealers and wiped out almost $1 billion in investor cash.
Joseph J. Lampariello, former president of Medical Capital, on Monday pleaded guilty to wire fraud and faces up to 21 years in federal prison and an order to pay $49 million in restitution, according to a report in The Orange County Register. The press report stated that the plea agreement was filed under seal in United States District Court in the Central District of California.
Calls placed Tuesday to Mr. Lampariello's attorney, Amy Karlin, to confirm the report were not returned. Assistant U.S. Attorney Jennifer Waier did not return calls. And Thomas Mrozek, a spokesman for the U.S. Attorney's office, declined to comment.
From 2003 to 2009, Medical Capital raised almost $2 billion, purportedly to buy discounted medical receivables such as unpaid doctor or hospital bills that Medical Capital would collect at full price.
A court-appointed receiver later charged that Medical Capital was a “Ponzi-like scheme” that had stolen about $1 billion from 12,000 investors, The Orange County Register reported.
Dozens of independent broker-dealers sold Medical Capital notes. Many have since gone out of business due to massive costs from lawsuits by investors looking to regain money lost in the fraud.
Medical Capital's former chief executive, Sidney Field, has not been criminally charged. Both Mr. Field and Mr. Lampariello, 58, were sued by the Securities and Exchange Commission in July 2008 for fraud in their running of MedCap's last offering, Medical Provider Funding Corp. VI, known as MedCap VI in the brokerage industry.
That case was later closed in order for criminal proceedings to continue.
According to the Justice Department's “information” filing against Mr. Lampariello last month, Mr. Lampariello defrauded the note holders of MedCap VI from August 2008 till June 2009.
The proceeds raised by MedCap VI would be used to purchase account receivables, make loans, pay sales commissions and other costs, and provide funds for general operating purposes, according to the information.
In fact, Mr. Lampariello and others “misappropriated investor funds” in order to “make Ponzi-type payments to note holders from earlier” partnerships and to pay fees to Medical Capital. Mr. Lampariello caused MedCap VI note holders to lose about $39 million, according to the filing.
Mr. Lampariello, according to a separate federal charge, “earned $6.2 million from MedCap from 2004 through 2008, including $1.47 million in 2008 alone, but failed to file federal tax returns,” The Orange County Register reported. “On Monday, he pleaded guilty to a single count of failing to file a tax return in 2008.”
“While selling medical receivables, MedCap was secretly engaged in far more adventurous investments — most of them money losers,” the paper reported.
“When the SEC took over, the company owned a medical nuclear reactor, as well as two closed hospitals that had lost their operating licenses. It was producing a feature-length movie about a Mexican Little League team,” the paper reported. “And it owned a 115-foot yacht, the Homestretch.”
