A Federal judge has put a sizable dent in Wells Fargo's plan to KO a class-action lawsuit filed by MedCap investors.
A federal judge Tuesday rejected a request by Wells Fargo & Co. to dismiss a class action brought by investors who lost money in notes issued by Medical Capital Holdings Inc.
The ruling by Judge David Carter of the U.S. District Court for the Central District of California denied in part a motion for summary judgment made by Wells Fargo. The decision lets some of the investor claims move forward in an attempt to certify a class claim.
The lawsuit is a consolidation of a number of investor claims against the bank that arose after Medical Capital, a medical-receivables company, went under in 2009 when the Securities and Exchange Commission charged it with fraud.
The firm had issued close to $2.2 billion in notes since 2003.
According to the court-appointed receiver for Medical Capital, investors have unpaid principal in excess of $1 billion. As of February, the receiver had recovered $157.5 million for investors.
In its role as trustee for the notes, Wells Fargo was responsible for disbursing investor funds so that Medical Capital could buy medical receivables.
Plaintiffs in the suit alleged that executives of Medical Capital “used the trustee-controlled accounts as their personal piggybanks.”
As reported in InvestmentNews, some registered reps who sold Medical Capital notes said that the participation of Wells Fargo and Bank of New York Mellon Corp., another trustee, gave them a sense of security.
“Wells Fargo believes it has acted appropriately and will continue to vigorously defend its case,” said Jen Hibbard, a spokeswoman for the bank.
Calls to lawyers representing the plaintiffs were not returned late Wednesday.
In February, the Bank of New York Mellon agreed to pay $114 million to investors.
News of the court decision was reported first by Reuters.
