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Wells Fargo and Medical Capital Holdings Case to Move Forward

Earlier this week, a federal judge rejected an attempt by Wells Fargo & Co. to throw out a class action lawsuit brought by investors who say the bank failed in its role as a trustee for debt issued by Medical Capital Holdings. The decision by Judge David Carter of the U.S. District Court for the Central District of California clears the way for a possible trial against Wells Fargo and its involvement with Medical Capital.

As reported April 3 by Reuters, investors allege that Wells Fargo was supposed to disburse money so that Medical Capital could offer financing to medical care providers by purchasing their outstanding receivables. Instead, investors contend Wells Fargo failed to stop Medical Capital from diverting investors’ money to such items as non-medical projects and excessive administrative fees.

In July 2009, Medical Capital, a medical-receivables company, collapsed after the Securities and Exchange Commission (SEC) charged it with fraud. At that time, Medical Capital had issued close to $2.2 billion in private-placement notes.  A court-appointed receiver later found that investors lost between $839 million and $1.08 billion through Med Cap’s use of a “Ponzi-like scheme” to extract excess fees from investors.

Joseph Lampariello, Medical Capital’s former president, pleaded guilty last year to criminal wire fraud related to the alleged scheme. He has yet to be sentenced.

In February, the Bank of New York Mellon, another Medical Capital trustee, agreed to pay $114 million to investors.

The cases are all in the U.S. District Court, Central District of California. The master case is Medical Capital Securities Litigation, No. 10-ml-02145. The Wells Fargo cases are Masonek et al v. Wells Fargo Bank et al, No. 09-1048; Bain et al v. Wells Fargo Bank et al, No. 10-0548; and Abbate et al v. Wells Fargo Bank et al, No. 10-06561.


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