Judge denies Wells Fargo bid as MedCap suit rolls on
A federal judge last Tuesday rejected a request by Wells Fargo & Co. to dismiss a class action…
A federal judge last Tuesday rejected a request by Wells Fargo & Co. to dismiss a class action brought by investors who lost money in notes issued by Medical Capital Holdings Inc.
The ruling, by Judge David Carter of the U.S. District Court for the Central District of California, denied in part a motion for summary judgment made by Wells Fargo. The decision lets some of the investor claims move forward in an attempt to certify a class claim.
The lawsuit is a consolidation of a number of investor claims against the bank that arose after Medical Capital, a medical-receivables company, went under in 2009 when the Securities and Exchange Commission charged it with fraud.
The firm had issued close to $2.2 billion in notes since 2003.
According to the court-appointed receiver for Medical Capital, investors have unpaid principal in excess of $1 billion. As of February, the receiver had recovered $157.5 million for investors.
DISBURSING FUNDS
In its role as trustee for the notes, Wells Fargo was responsible for disbursing investor funds so that Medical Capital could buy medical receivables.
Plaintiffs in the suit alleged that executives of Medical Capital “used the trustee-controlled accounts as their personal piggy banks.”
As reported in InvestmentNews, some registered representatives who sold MedCap notes said that the participation of Wells Fargo and The Bank of New York Mellon Corp., another trustee, gave them a sense of security.
“Wells Fargo believes it has acted appropriately and will continue to vigorously defend its case,” bank spokeswoman Jen Hibbard said.
Calls to lawyers representing the plaintiffs weren’t returned.
In February, BNY Mellon agreed to pay $114 million to investors.
News of the court decision was reported first by Reuters.
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