Two banks that were trustees for one of the biggest frauds in Orange County history have offered $106 million to make investors go away — but it may not be enough.
Wells Fargo Bank and Bank of New York Mellon struck a secret deal in recent weeks with the court-appointed receiver for Medical Capital Holdings, a billion-dollar Ponzi scheme. Now attorneys who are suing the banks are trying to scuttle the deal.
Investors lost about $1 billion in Tustin-based MedCap. The company, which claimed to be selling investments in medical receivables, actually was investing in money-losing hospitals, a medical nuclear reactor, a movie about a Mexican Little League team and a 115-foot yacht, the Homestretch.
Top officer Joseph J. “Joey” Lampariello pleaded guilty to wire fraud and failure to file a tax return last week and could get 21 years in federal prison.
Attorneys packed the courtroom of U.S. District Judge David O. Carter Wednesday to argue over the proposed settlement. Carter ordered them to see a mediator and return to court on July 23.
The stakes are high:
- Investors have not gotten a cent from MedCap since early 2009 and likely won’t get more than a few pennies on the dollar until the bank case is resolved. If Carter lets the receiver freeze out the plaintiff’s attorneys, and they then appeal, investors might not get anything for years.
- The receiver and the Securities and Exchange Commission believe the plaintiffs are putting $100 million at risk.
- The plaintiff’s attorneys think the receiver, Thomas A. Seaman, settled for far too little.
- And then there are attorney’s fees. Seaman’s attorneys would collect $2 million of the settlement, leaving the remaining $104 million for investors. The plaintiff’s attorneys said in court they would cap their fees at 10 percent to 15 percent but also said they expect the total award would be much higher than what Seaman got.
Two rival groups of investors, each with their own team of lawyers and conflicting legal theories, sued the banks in 2010. The two sides appear to be united only in their opposition to the banks and their fury at Seaman in making a deal behind their backs.
Carter wanted to know: Why the secrecy? Why not invite the plaintiff’s attorneys to the settlement talks? Surely, he suggested, the plaintiff’s attorneys “might have driven up the value (of the settlement) by $25 or $100 million?”
Ron Malone, Seaman’s attorney, said that “as a group (the plaintiff’s attorneys) were dysfunctional and there was open warfare among them.” If we had invited them to settlement talks with the banks, he added, “we would not agree on the shape of the table, much less a settlement.”
Wylie Aitken, one of the plaintiff’s attorneys, said Seaman and his attorneys “suggest that they can hijack our clients. … I just don’t think that’s the way we should be proceeding.”
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