Wells Fargo agrees to pay $105M to end MedCap suit

Investor recovery pool for failed private placements balloons by $105 million. Bruce Kelly has the details.
AUG 08, 2013
The pot of restoration money for investors in the Medical Capital Holdings Ponzi scheme got a little heftier Tuesday. Wells Fargo & Co., one of two trustee banks for the scheme, agreed to pay $105 million to a class of note holders who alleged that they suffered damages because the bank failed to protect their interests. In February, Bank of New York Mellon Corp., the other trustee bank, agreed to pay $114 million to settle similar claims. Dozens of independent broker-dealers sold Medical Capital notes from 2003 to 2009, raising about $2.2 billion for the fraudulent medical receivables scheme. The private placement was a high-commission product that promised interest-rate returns of 8.5% to 10.5%. The Securities and Exchange Commission sued MedCap and its top executives for fraud in 2009, bringing the scheme to a crashing halt. About half of the money raised was never returned to investors. According to court filings, Medical Capital collected close to $325 million in administrative fees from investors. Former Medical Capital president Joseph J. Lampariello last May pleaded guilty to wire fraud and faces up to 21 years in federal prison and an order to pay $49 million in restitution. He has not yet been sentenced. Many of the broker-dealers that sold the MedCap notes have since gone out of business, crushed by the overwhelming costs of legal fees and arbitration losses to clients. The Medical Capital receiver, Thomas Seaman, last month said that he had so far collected $160 million through assets sales, loan payments and other streams of revenue. The latest receiver's report does not include the Bank of New York or Wells Fargo settlements. Wells Fargo “vigorously denies all allegations of wrongdoing, fault liability and damage of any kind to the plaintiffs,” according to the court filing announcing the settlements, which was filed in U.S. District Court for the Central District of California, Southern Division. “This case is really about a fraud committed by Medical Capital, which unfortunately caused a number of parties to suffer losses,” spokeswoman Jen Hibbard said. “We are pleased to be able to put this matter behind us.”

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