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Ex-MedCap Prez Gets 10 Years For $50M Investor Fraud

Ex-MedCap Prez Gets 10 Years For $50M Investor Fraud

By Kurt Orzeck

Law360, Los Angeles (June 15, 2016, 6:44 PM ET) — A California federal judge has sentenced Medical Capital Holdings Inc.’s ex-president to serve more than 10 years in prison and pay nearly $40 million for allegedly operating a $50 million Ponzi scheme that defrauded hundreds of investors, federal prosecutors said Wednesday.

U.S. District Judge David O. Carter on Monday issued a judgment ordering Joseph J. Lampariello, 62 — who also served as chief operating officer of the medical financial services company — to 10 years and one month in federal prison, as well as three years of supervised release.

MedCap’s alleged Ponzi scheme ran from 2003 to 2009 and raised $2.2 billion by selling promissory notes with the pledge that the money would be spent on the company’s accounts to fund its medical device business, according to court documents. But Lampariello allegedly used the funds as a personal piggy bank, improperly diverting $325 million in investor money, the government said.

Lampariello previously pled guilty to one felony count of wire fraud and one misdemeanor count of willfully failing to file a tax return, prosecutors said in a Wednesday statement. His plea agreement was filed under seal, and his sentencing was postponed several times.

U.S. Attorney Eileen M. Decker said in the statement that Lampariello’s sentence “properly reflects the significant harm he caused to hundreds of victims. This defendant’s false promises were designed only to provide wealth for himself, and he must now pay for that greed.”

Deirdre L. Fike, the assistant director in charge of the FBI’s Los Angeles field office, added, “The massive monetary figures can’t begin to explain the devastation to victims in this case, some of whom were forced out of retirement, some who lost their marriage and many more who lost trust and live with despair as a result.”

The U.S. Securities and Exchange Commission sued Lampariello, former MedCap CEO Sidney M. Field, MCHI and affiliates Medical Capital Corp. and Medical Provider Funding Corp. VI in July 2009, alleging they committed securities fraud in the offer and sale of about $75 million in securities. The agency later amended its complaint to claim the Tustin, California-based company had fraudulently issued more than $1.7 billion in notes between 2003 and 2009.

MedCap has been in receivership since August 2009, when the SEC alleged the company defrauded investors by misappropriating $18.5 million of a $77 million sale of notes for one of the special purpose corporations and that it owed more than $1.2 billion in outstanding loans.

Wells Fargo Bank NA and Bank of New York Mellon were both hit with investor suits claiming they had breached their contractual obligation as indenture trustees to review MedCap’s documentation before disbursing investor funds to the company.

Both banks agreed in June 2013 to pay a combined $106 million to the MedCap receivership estate to settle the U.S. government’s fraud allegations. BNY Mellon settled the investors’ claims for $114 million, while Wells Fargo agreed to pay $105 million.

Sedgwick LLP settled MedCap receiver Thomas Seaman’s claims that the firm owed more than $200 million in damages for failing to advise MedCap about loan limitations that prevented the company from spending too much money on nonapproved investments, seeking approval of a confidential settlement in March 2015.

Field and the SEC reached a settlement in November. In February, Judge Carter ordered Field to pay up to $16 million in reimbursements and penalties following the settlement.

An attorney for Lampariello didn’t immediately respond to a request for comment on Wednesday.

The U.S. is represented by Assistant U.S. Attorney Jennifer L. Waier.

Lampariello is represented by Amy Karlin.

The case is USA v. Joseph J. Lampariello, case number 8:11-cr-00253, in the U.S. District Court for the Central District of California.

Source: law360.com