An investor has won the first arbitration complaint against a broker-dealer over the sale of a scandal-marred private placement.
In May, Marilyn Hazell won a $400,000 Finra arbitration claim against Peak Securities Corp., claiming breach of contract, breach of fiduciary duty, negligence and fraud stemming from the purchase of notes offered by Medical Provider Funding Corp. VI.
Those notes are at the center of a Securities and Exchange Commission fraud complaint issued last summer. The SEC charged Medical Capital Holdings Inc., the parent company of the issuer, with fraud in the sale of $77 million in notes. MedCap initially indicated that funds raised from its private placements would be invested in medical receivables. Instead, the SEC claims MedCap took $25 million in administrative fees for one fund, Medical Provider VI. That's five times more than the fund collected in medical receivables, according to the regulator.
Dozens of independent broker-dealers sold the notes.
A scan of the Finra database of arbitration awards shows that this is the first award involving “Medical Provider Funding VI,” the last in a series of offerings that raised $2.2 billion from investors. About $1 billion in investor money has most likely been wiped out.
Several class actions are pending against broker-dealers that sold Medical Capital notes. In addition, investors have filed hundreds of arbitration claims against individual broker-dealers who sold those notes or other private placements that eventually imploded.
The award in arbitration matched the claim: $400,000. It is extremely rare for investors to receive awards for the total amount of their claim.
Peak Securities lost its registration with the
Financial Industry Regulatory Authority Inc. in November. The investor's award was a “default decision,” said Nicholas D. Thomas, Ms. Hazell's attorney. Peak Securities failed to engage in the arbitration, he said, and a single arbitrator made the award.
Since Peak is no longer a registered broker-dealer, the next step in the claim will be an attempt to turn the arbitration award into a court judgment, Mr. Thomas said.
David Dube, the owner of Peak Securities, was not available Tuesday afternoon to comment.
Medical Capital is being dismantled by a court-appointed receiver.
