Bank of NY Mellon to Pay $114M in Medical Capital Settlement

Medical Capital Holdings, the company that issued close to $2.2 billion in private placement notes from 2003 to 2009, is back in the news following the announcement that The Bank of New York Mellon Corp. has agreed to pay $114 million to investors of MedCap notes.

The Bank of New York Mellon Corp. is one of two trustees of the failed Medical Capital private placements.

In 2009, Medical Capital was charged by the Securities and Exchange Commission (SEC) with fraud. The company collapsed shortly thereafter. Investors, meanwhile, lost about half of the $2.2 billion in notes that Medical Capital issued from 2003 to 2009.

Following the demise of Medical Capital, investors took numerous legal actions. Those actions included suing broker/dealers and registered representatives who sold them the Medical Capital investments, as well as suing trustees such as The Bank of New York.

As reported Feb. 25 by Investment News, plaintiffs allege in their lawsuits that executives with Medical Capital “used the trustee-controlled accounts as their personal piggy banks” and that Bank of New York, as well as another bank – Wells Fargo – “were paid substantial fees” for their service.

The receiver in the Medical Capital case has so far come up with $157.5 million for investors. Investors who bought Medical Capital notes from Securities America – one of the largest sellers of Med Cap notes – received close to $80 million as part of a 2011 class action settlement involving Medical Capital and other failed private placements.

In August 2011, Securities America was acquired by Ladenburg Thalmann Financial Services Inc. for a reported $150 million in cash.