Bank of New York Mellon Agrees to Settle Medical Capital Fraud for over $110 Million
Bank of New York Mellon Co would be paying around $114 million for settling claims because of its role as a trustee to Medical Capital Holdings Inc that issued debt and collapsed after the allegations of fraud in 2009. Medical Capital was a financing firm for medical receivables.
The bank is the largest custodial bank in the world, and it was accused by investors of being unable to review the dealings of Medical Capital before allowing the company to use the money of investors. This breached the bank’s contractual duty to the investors.
The U.S. Securities and Exchange Commission filed a lawsuit in 2009 against Medical Capital and its leading executives for fraud. This was followed by the appointment of a receiver.
According to the filings, the company had raised a staggering $1.7 billion from tens of thousands of investors before the Commission closed the company.
The forensic accounting report produced by the receiver in 2011 reveals that the loss to investors was almost $1 billion, and that Medical Capital used a strange scheme for extracting excess fees from the investors. The receiver in this case was Thomas Seaman.
It has been revealed in the papers filed in the Santa Ana, California U.S. District Court that the bank is ready to settle all the claims raised by investors in two connected litigations, class action litigation and the receiver.
The class action investors would be receiving a total of over $90 million in cash payments. However, according to their lawyers, they would be seeking over $13 million along with an additional $1.8 million as expenses.
According to the papers, litigation would continue against another trust in some of the debts of Medical Capital, Wells Fargo & Co in related class action. This settlement is awaiting the approval of the court.
On the part of Bank of New York Mellon, it has denied of any wrongdoing. However, it has agreed for the settlement for avoiding any litigation costs or risks, according to the papers. According to Kevin Heine, the spokesman for the bank, they are content that they would be moving on from this matter. David Azar is one of the lawyers representing a number of investors. However, he declined any comments. A spokesman for Wells Fargo didn’t give any response when asked for any comments.
According to court records, one of the executives of Medical Capital who is facing lawsuit by the Commission has pleaded guilty in 2012 to a fraud charge over a connected criminal wire. Joseph Lampariello was the President of Medical Capital. The records also show that he is awaiting the sentence. He is one of the two executives that were sued by the Securities and Exchange Commission.