SEC: NY Sen. candidate tied to firm sued for fraud

AP News
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Posted: Oct 12, 2010 4:57 PM
SEC: NY Sen. candidate tied to firm sued for fraud

U.S. Senate candidate Joe DioGuardi had financial ties to a California business accused in federal court of defrauding investors by misappropriating millions of dollars, according to federal regulators.

The Securities and Exchange Commission claims in a lawsuit that Tustin, Calif.-based Medical Capital Holdings, which provided financing to health care providers, misappropriated investor funds.

DioGuardi, a former Republican congressman challenging Democratic Sen. Kirsten Gillibrand, once sat on the boards of three wholly-owned subsidiaries of Medical Capital Holdings, according to court documents. And defendants in the lawsuit last year tried to have him replace a court-appointed manager of Medical Capital Holdings and its subsidiary, Medical Capital Corp., according to court filings first reported on Tuesday in the New York Daily News.

DioGuardi, a certified public accountant, is not a defendant in the case.

SEC lawyers responded sharply to the request, saying in a court filing that DioGuardi was an "old crony" of the firms' directors and had been on their payroll since at least 2004. They said DioGuardi received $5,000 a month from MCC for consulting from January 2007 through at least March 2009, in addition to director fees of $4,000 per quarter.

They accused the defendants of failing to disclose their relationship with DioGuardi as part of a plan to maintain control of the business. A judge denied the company's request.

DioGuardi's campaign said Tuesday he did nothing wrong.

"Joe was a consultant who worked on saving hospitals in New York from being closed down, but that is it," spokesman Tom Kise said in an e-mailed statement. "Joe has never seen the books or served on the boards of Medical Capital Corp. or its parent company Medical Capital Holdings."

The company's assets are frozen and the case is pending.

The newspaper reported that as of last November, thousands of investors were owed $1 billion.