MedCap trustee to pay investors $114M

Bank of New York Mellon Corp. was one of two trustees of failed private placements

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 in 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 that amount, according to court documents.

LEGAL ACTIONS

After Medical Capital failed, investors took numerous legal actions, from suing broker-dealers and the registered representatives who sold them the securities to trustees such as BNY Mellon 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 BNY Mellon “were paid substantial fees” for their service.

A few other such investor complaints were joined in a class action.

At the time of the lawsuits against the banks, some registered reps who sold MedCap notes said that the participation of BNY Mellon and Wells Fargo as trustees for Medical Capital notes gave them a sense of security when selling the notes.

BNY Mellon spokesman Kevin Heine said, “We are pleased to be putting this matter behind us.”

Investors’ complaints against Wells Fargo continue.

A Wells Fargo spokeswoman, Mary Eshet, didn’t return a call last week seeking comment.

AGREEMENT REACHED

Investors and BNY Mellon reached an agreement to the settlement in December. The settlement requires court approval.

The MedCap receiver so far has come up with $157.5 million for investors. Those who bought MedCap 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.