InvestmentNews reports that Wells Fargo & Co. has agreed to pay $105 million in a class action lawsuit brought by investors who purchased Medical Capital notes. The notes turned out to be a fraudulent medical receivables scheme. The note holders alleged that Well Fargo, one of two trustee banks in the scheme, failed to protect their interests. The other trustee bank, Bank of New York Mellon Corp., reportedly agreed to pay $114 million to settle similar allegations.
Numerous independent broker-dealers sold approximately $2.2 billion of private placement notes issued by Medical Capital during the period from 2003 to 2009. Many of these broker-dealers have shut down, unable to absorb expenses of litigation and liabilities for arbitration awards to clients.
The Medical Capital notes, which promised annual interest from 8.5% to 10.5%, paid the selling brokers a high-commission. This in turn provided the impetus for brokers not to conduct due diligence on the offering, but rather to push the product on unsuspecting investors.
The Securities and Exchange Commission identified the Medical Capital Notes offering as a fraudulent scheme undertaken by Medical Capital and its top executives. Based on its investigation and findings, the SEC sued Medical Capital and its top executives, thereby halting the fraud, in 2009.
Page Perry is an Atlanta-based law firm with over 150 years of collective experience maintaining integrity in the investment markets and protecting investor rights.