Wells Fargo & Company
) agreed to shell out a sum of $105 million to settle a lawsuit
filed against it by Medical Capital Holdings Inc. The lawsuit
alleged that Wells Fargo, acting as a trustee for debt issued by
Medical Capital Holdings, failed to protect the investors against
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The settlement agreement was filed in the U.S. District Court in
Santa Ana, CA. This was subsequent to a judge's dismissal of
Wells Fargo's bid to seek relief from the charges in April.
Notably, Medical Capital raised $1.7 billion from more than
20,000 investors from 2003 to Jul 2009, when the U.S. Securities
and Exchange Commission sued the California-based medical
receivables financing company and its higher management for
fraud. Medical Capital soon collapsed and investors lost between
$839 million and $1.08 billion.
The aforesaid lawsuit was filed by the investors of Medical
Capital in the U.S. District Court, Central District of Calif.
They claimed that Wells Fargo was entrusted with the distribution
of money so that Medical Capital could help finance medical care
providers by buying their outstanding receivables.
However, Medical Capital channeled the funds toward non-medical
projects and unwarranted administrative fees. Investors purchased
notes issued by 3 Medical Capital special purpose companies and
Wells Fargo acted as a trustee for them. The investors claimed
millions of dollars as compensation.
The Bank of New York Mellon Corporation
) agreed to a settlement of $114 million as claim over its role
as a trustee for the Medical Capital debt. Furthermore, Joseph
Lampariello, the former president of Medical Capital Holdings,
pleaded guilty in May 2012.
We believe that the settlement of the lawsuit comes as some
relief for investors who lost their hard-earned money. However,
it is expected to add to the legal expenses of Wells Fargo.
Currently, Wells Fargo carries a Zacks Rank #3 (Hold). Banks with
better Zacks Rank include
Fifth Third Bancorp
State Street Corporation
). Both carry a Zacks Rank #2 (Buy).