Wells Fargo to Pay $105M in Medical Capital Fraud Case

Medical Capital Holdings investors who lost millions of dollars in a failed private-placement deal that turned out to be a Ponzi scheme received a bit of good news recently. Wells Fargo & Co., one of two trustee banks for Medical Capital securities, agreed to pay $105 million to a class of note holders who alleged they suffered damages because the bank failed to protect their interests. Earlier this year, Bank of New York Mellon Corp., the other trustee bank, agreed to pay $114 million to settle similar claims by investors.

From 2003 to 2009, dozens of independent broker/dealers sold Medical Capital notes. In total, about $2.2 billion was raised for the fraudulent scheme involving medical receivables. The private placement itself was a high-commission product that touted big returns of up to 10.5%. In July 2009, the Securities and Exchange Commission (SEC) charged Medical Capital with fraud. About half of the money raised was never returned to investors.

Many broker/dealers responsible for selling MedCap notes were unable to sustain the legal costs of investors’ claims and have since gone out of business.

Court filings show that Medical Capital collected approximately $325 million in administrative fees from investors.

Former Medical Capital president Joseph J. Lampariello pleaded guilty to wire fraud last May. He faces up to 21 years in federal prison, as well as an order to pay nearly $50 million in restitution. So far, he has not been sentenced.

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. The court filing was filed in U.S. District Court for the Central District of California, Southern Division.