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Note: Quality Health Plan, Inc. (Florida Company), a Florida HMO, which was controlled by the Khan family failed to meet statutory requirements regarding surplus capital. Through a scheme with another Khan-controlled entity, Quality Health Plan of New York, Inc., funds were borrowed from Fifth Third Bank (Lender). These funds were held in accounts of Florida Company at Lender to give the appearance that Florida Company was properly capitalized, although the account was structured so that the proceeds could only be used to repay the loans.

When a USD 3 million standby for the account of Florida Company and collateralized by a securities brokerage account was drawn on, Lender reimbursed itself from Florida Company’s account, making it under capitalized. To show required capitalization, Florida Company fabricated evidence of additional capitalization, which was discovered and Florida Company deemed insolvent. Liquidation proceedings were then commenced and the Khans arrested for fraud.

As a result of Lender’s role, Vicis Capital Master Fund (Investor), an investor, sued Lender, alleging that it had aided and abetted the fraud and conspired to commit it. Lender moved for summary judgment, which was granted by the U.S. District Court for the Middle District of Florida, Honeywel, J.

Noting that Investor failed to establish the value of the stock purchased by Investor, the Judge ruled that it had failed to prove damages.

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