Law Firms

Sedgwick Faces $200M Malpractice Suit by Receiver for Failed Financial Services Company

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A receiver for a failed financial services company alleges in a $200 million malpractice suit that Sedgwick had a conflict of interest when it represented two competing divisions of the business.

The suit claims Sedgwick aided the company, Medical Capital Holdings Inc., in a breach of fiduciary duty, Reuters reports. The company raised money from investors to make loans to and buy accounts receivable from heath care providers. The Securities and Exchange Commission sued the company for fraud in 2009 after it defaulted on nearly $1 billion in investor notes.

The suit claims Sedgwick represented Medical Capital’s investment arm, which had a duty to pay principal and interest on loan notes, and its loan administration division, which had an interest in servicing as many loans as possible. In many cases, accounts receivable that had been purchased to justify payments of administrative fees were “entirely bogus,” the suit says. In addition, Medical Capital affiliates made loans to health care providers that were outside the parameters of governing documents, the suit alleges.

Sedgwick partner Michael McGeehon told Reuters in an email that the firm is “in no way responsible” for any of Medical Capital’s losses. “The firm denies, and will vigorously contest, the allegations made against it,” McGeehon said.

The suit was filed Monday in federal court in California.

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