Securities America Sued By Wells Fargo, BNY Mellon Over MedCap Private Placements

Securities America and other broker/dealers that sold private placements in Medical Capital Holdings are now facing even more legal troubles. In addition to the many claims and lawsuits filed by investors against over the failed offerings, two banks – The Bank of New York Mellon Corp. and Wells Fargo Bank NA – have filed two separate lawsuits against certain broker/dealers – including Securities America – that sold MedCap private placements to investors.

As reported May 26 by Investment News, Wells Fargo is suing six firms, as well as Ameriprise Financial, the parent of Securities America. Bank of New York Mellon is suing 13 broker/dealers.

From 2003 to 2008, dozens of independent broker/dealers marketed and sold private placements in Medical Capital. Securities America sold about $700 million of the product. In April 2011, it agreed to settle with investors who were suing the firm in a class action.

In total, investors have lost more than $1 billion in principal.

Interestingly, the Bank of New York Mellon Corp. and Wells Fargo Bank NA, were once trustees for Medical Capital Holdings. In 2009, both were sued in a class action lawsuit after the Securities and Exchange Commission (SEC) charged Medical Capital with fraud, calling the operation Ponzi scheme. Now, the Bank of New York Mellon and Wells Fargo want the broker/dealers to come up with money if, in fact, they are found liable in those class actions.

The plaintiffs in the class action against the two banks allege that in a 2010 amended complaint the Bank of New York Mellon and Wells Fargo signed off on a request by Medical Capital executives to take $325 million in fees. However, documents for the Medical Capital investments clearly stated that fees were not allowed to come from investor funds.