Wells Fargo in $105M Settlement - Analyst Blog
May 02 2013 - 1:10PM
Zacks
Wells Fargo & Company (WFC) agreed to shell
out a sum of $105 million to settle a lawsuit filed against it by
Medical Capital Holdings Inc. The lawsuit alleged that Wells Fargo,
acting as a trustee for debt issued by Medical Capital Holdings,
failed to protect the investors against fraud.
The settlement agreement was filed in the U.S. District Court in
Santa Ana, CA. This was subsequent to a judge's dismissal of Wells
Fargo's bid to seek relief from the charges in April.
Notably, 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 the California-based medical receivables
financing company and its higher management for fraud. Medical
Capital soon collapsed and investors lost between $839 million and
$1.08 billion.
The aforesaid lawsuit was filed by the investors of Medical Capital
in the U.S. District Court, Central District of Calif. They 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. Investors purchased
notes issued by 3 Medical Capital special purpose companies and
Wells Fargo acted as a trustee for them. The investors claimed
millions of dollars as compensation.
In February, The Bank of New York Mellon
Corporation (BK) agreed to a settlement of $114 million as
claim over its role as a trustee for the Medical Capital debt.
Furthermore, Joseph Lampariello, the former president of Medical
Capital Holdings, pleaded guilty in May 2012.
We believe that the settlement of the lawsuit comes as some relief
for investors who lost their hard-earned money. However, it is
expected to add to the legal expenses of Wells Fargo.
Currently, Wells Fargo carries a Zacks Rank #3 (Hold). Banks with
better Zacks Rank include Fifth Third Bancorp
(FITB) and State Street Corporation (STT). Both
carry a Zacks Rank #2 (Buy).
BANK OF NY MELL (BK): Free Stock Analysis Report
FIFTH THIRD BK (FITB): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
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