SANTA ANA, Calif. - The receiver for Medical Capital
Holdings Inc. (MedCap) said yesterday that he had reached a $106 million
settlement with Wells Fargo Bank NA and Bank of New York Mellon (BNY Mellon),
resolving allegations that the banks were complicit in MedCap's alleged Ponzi
scheme (Securities and Exchange Commission v. Medical Capital Holdings Inc.,
et al., No. 09-00818, C.D. Calif.).
In a declaration in support of his motion for approval of
the settlement filed in the U.S. District Court for the Central District of
California, MedCap trustee Thomas A. Seaman said Wells Fargo agreed to pay $49
million and BNY Mellon agreed to pay $57 million.
Litigation Costs, Risks
MedCap raised money by setting up special purpose
corporations, known as medical provider funding corporations (MPFCs), which
sold notes to investors. In July 2008, the U.S. Securities and Exchange
Commission sued MedCap, its entities and principals Sydney Field and Joseph
Lampariello, alleging that Field and Lampariello engaged in a Ponzi scheme to
defraud investors in the MPFCs.
The banks served as indenture trustees for the
MPFCs. The banks were alleged to have breached the noteholder issuance
and security agreements, which outlined their control and disbursement of
funds. On Oct. 12, 2010, the District Court issued an order authorizing
Seaman to file claims against the banks if Seaman deemed proper. He then
entered settlement discussions with the banks. Seaman said he opted for a
settlement because he was concerned about the costs and risks of litigation
against the banks.
"In [the] worst case scenario, if the Trustees prevailed
(or if this Settlement is not consummated and the Trustees prevail in the
future), the Receivership Estate would recover nothing, and would face
indemnity claims that could well exceed $50 million, wiping out half of the
Receivership Estate," Seaman said.
Seaman also said the settlement is the best option in
light of related class and mass actions against the banks.
"The net benefit of the Settlement is significantly
greater than $104 million, as it eliminates the risk to the Receivership Estate
of having to pay the Trustees' legal fees should the Class Action or Mass
Actions ultimately fail - an indemnity claim that I estimate currently exceeds
$25 million, and would likely exceed $50 million if those cases are tried," he
Seaman is represented by Ronald Hayes Malone and Frank A.
Cialone of Shartsis Friese in San
Francisco. Wells Fargo is represented by Edward
T. Wahl, Stephen M. Mertz and Theresa H. Dykoschak of Faegre & Benson in Minneapolis, Jesse S. Finlayson of Finlayson Williams
Toffer Roosevelt & Lilly in Irvine, Calif., and Timothy William Loose of Gibson Dunn & Crutcher
in Los Angeles.
Counsel information for BNY Mellon was not available.
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