Jim Nagengast, CEO of embattled Securities America, claims that The Bank of New York Mellon Corp. and Wells Fargo Bank NA are suing the broker/dealer in an attempt to reduce their liability in the sale of failed private placements in Medical Capital Holdings.
The story, first reported May 29 by Investment News, cites an email to the Securities America advisers in which Nagengast reportedly claims that a pending settlement in a class action filed against Securities America, if approved, would wipe out the banks’ claims against the firm.
The Bank of New York Mellon Corp. and Wells Fargo Bank filed separate lawsuits against Securities America last month. Both banks were formerly trustees for Medical Capital Holdings.
The Bank of New York complaint states that the broker/dealers that sold private placements in Medical Capital breached their obligation to MedCap investors by selling an unsuitable product and failing to disclose the risks of the notes.
Bank of New York Mellon has sued 13 broker/dealers; Wells Fargo has sued six firms, as well as Ameriprise Financial, which owns Securities America.
In September 2009, two months after the Securities and Exchange Commission (SEC) charged Medical Capital with fraud, a group of Medical Capital investors sued The Bank of New York Mellon Corp. and Wells Fargo Bank in a class action lawsuit. The plaintiffs in that class action claimed in an amended 2010 complaint that the two trustees signed off on requests by Medical Capital executives to take $325 million in fees — despite documents for the notes indicating that fees were not supposed to come from investor funds.
From 2003 to 2008, dozens of independent broker/dealers sold private placements in Medical Capital, raising $2.2 billion. By far, Securities America is the biggest seller of Medical Capital notes, selling about $700 million.
In total, investors have lost more than $1 billion in principal. Today, regulators and the Medical Capital bankruptcy trustees say Medical Capital operated as nothing more than a Ponzi scheme.