Medical Capital Moves Towards Bankruptcy Filing

The officers of Tustin lender Medical Capital Holdings asked a federal judge Monday to let the company file a Chapter 11 bankruptcy reorganization.

U.S. District Judge David O. Carter said he probably would refuse. But he gave the company and the Securities and Exchange Commission a week to make their cases. The SEC sued Medical Capital for fraud last month, and Carter appointed a temporary receiver on Aug. 3.

Separately, Carter told receiver Thomas Seaman and attorneys for Wells Fargo Bank to stay in the courthouse and try to resolve a fight over money. He ordered them to return to his courtroom at 7 tonight.

Wells Fargo is trustee for two of Medical Capital’s six investor funds. The bank wants those two funds, which total $510 million in principal, taken away from the receiver.

Seaman said he needs the money to preserve Medical Capital assets. The power is about to be shut off at one of those assets, medical isotope maker Trace Life Sciences in Denton, Tex., he said. Another asset is a shuttered hospital in Atlanta.

“I have all kinds of collateral that I can’t take care of,” Seaman told Carter.

“Get busy. Work this out,” Carter told Seaman and the attorneys for Wells Fargo. “I’m hearing too much reluctance, quite frankly.”

Carter also gave the Wells Fargo attorneys a pointed warning to make a deal before the nighttime court session.

“I have a nuclear power plant,” Carter said, referring to the linear accelerator at the Denton facility. “If I have to balance the equities, guess who loses? Wells Fargo.”

Medical Capital raised $2.2 billion from 20,000 investors in the past six years, investing most of it in medical receivables. The SEC contended in its lawsuit that the company had defrauded investors of at least $18.5 million.