The Bank of New York Mellon Corp., one of two trustees of failed Medical Capital Holdings Inc. private placements, has agreed to pay $114 million to investors of MedCap notes.
Medical Capital collapsed in 2009 after the Securities and Exchange Commission charged it with fraud. The medical-receivables company issued close to $2.2 billion in notes from 2003 to 2009. Investors lost about half of that amount, according to court documents.
After Medical Capital failed, investors took numerous legal actions, from suing broker-dealers and the registered representatives who sold them the securities to suing the trustees such as Bank of New York and Wells Fargo & Co.
In lawsuits against the banks, plaintiffs alleged that executives with Medical Capital “used the trustee-controlled accounts as their personal piggy banks” and that Wells Fargo and Bank of New York “were paid substantial fees” for their service. A few other such investor complaints were joined together in a class action.
Investors' complaints against Wells Fargo continue. A Wells Fargo spokeswoman, Mary Eshet, did not return a call today seeking comment.
Bank of New York spokesman Kevin Heine said, “We are pleased to be putting this matter behind us.”
Investors and Bank of New York reached an agreement to the settlement in December, but it was revealed last Thursday in documents filed in U.S. District Court in Santa Ana, Calif. The settlement requires court approval.
At the time of the lawsuits against the banks, some registered reps who sold Medical Capital notes said that the participation of Bank of New York and Wells Fargo as trustee for Medical Capital notes gave them a sense of security when selling the notes.
The Medical Capital receiver so far has come up with $157.5 million for investors. Investors who bought Medical Capital notes from Securities America Inc., the largest seller of the notes, received close to $80 million as part of a 2011 class action settlement involving Medical Capital and other failed private placements.