Medical Capital executive gets 10-year sentence for private placement fraud

Joseph J. Lampariello also ordered to pay nearly $40 million in restitution.

A former top executive of Medical Capital Holdings Inc., a private placement-turned-Ponzi scheme that destroyed dozens of broker-dealers, is heading to prison.
Joseph J. Lampariello, 62, the one-time president and chief operating officer of Medical Capital Holdings, was sentenced on Monday to 10 years and one month in federal prison by U.S. district judge David O. Carter. In addition to the prison term, Mr. Lampariello was ordered to pay close to $40 million in restitution to investors who had lost millions of dollars.
Medical Capital Holdings was a medical receivables financing company that operated in southern California. Raising money through a network of independent broker-dealers, the company oversaw funds that were intended to purchase account receivables from accredited medical providers, make secured loans and provide money for general operating expenses.
Over 11 months in 2008 and 2009, Mr. Lampariello misappropriated funds invested with one of the MedCap series of deals and used the money to make payments to prior investors and to pay himself administrative fees, according to a statement from the U.S. Attorney’s office for the central district of California. Through Medical Capital, Mr. Lampariello defrauded more than 700 investors of nearly $49 million, according to the U.S Attorney’s statement.
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 then collect at full price.
“Mr. Lampariello’s sentence properly reflects the significant harm he caused to hundreds of victims,” said U.S. attorney Eileen M. Decker, in the statement. “This defendant’s false promises were designed only to provide wealth for himself, and he must now pay for that greed.”
Dozens of independent broker-dealers sold MedCap notes and wiped out millions of dollars in investor cash. Brokers who sold them earned commissions of 7%. Like other private placement sponsors, Medical Capital paid broker-dealers a so-called “due diligence” fee of 1%.
Securities regulators later found many of the broker-dealers that sold Medical Capital and other fraudulent private placements before the credit crisis failed to perform adequate due diligence on the high-risk deals. Many of the B-Ds went out of business due to massive costs from lawsuits brought by investors looking to regain money lost in the fraud.
After the SEC charged Medical Capital with fraud in 2009, it took the company over. At the time, the company owned a medical nuclear reactor, as well as two closed hospitals that had lost their operating licenses. It was also producing a movie about a Mexican Little League team. The company also owned a 115-foot yacht, the Homestretch.