, the federal judge in Calif. rescinded the bid filed by
Wells Fargo & Company
) regarding the dismissal of a lawsuit charged against the bank.
The lawsuit accused it of failing in its role as a trustee for
debt issued by Medical Capital Holdings Inc., a financing
company. The U.S. District Judge, David Carter, has ordered the
plaintiffs to pursue the proceedings over their claims against
Wells Fargo, though some have been dismissed.
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It has been notified that 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 Calif.-based Tustin
and 2 executives for fraud. Medical Capital soon collapsed
and it was discovered that investors lost between $839 million
and $1.08 billion.
The aforesaid lawsuit has been filed by the investors of Medical
Capital in the U.S. District Court, Central District of Calif.
The investors 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.
All the plaintiffs charged Wells Fargo in 63 separate breaches,
which include the bank's failure in recognizing the events of
default and providing funds to Medical Capital based on
materially misleading statements.
Investors purchased notes issued by 3 Medical Capital special
purpose companies and Wells Fargo acted as a trustee in those.
The investors demand millions of dollars as claims. However, in
its defense, Wells Fargo claimed that it diligently performed its
contractual obligations and has not acted in bad faith.
he Bank of New York Mellon Corporation
) had agreed to a settlement of $114 million as claims over its
role as a trustee for the Medical Capital debt.
The continuously mounting lawsuits are apprehended to dent the
banks' reputation and financials. However, this comes as some
relief for investors who have lost their hard-earned money in
Currently, Wells Fargo holds a Zacks Rank #3 (Hold). Other major
banks worth considering include
JPMorgan Chase & Co.
) with a Zacks Rank #2 (Buy).