Investors accused Bank of New York Mellon, the world's largest custodial bank, of failing to properly review Medical Capital's dealings before letting the company use investors' money, breaching its fiduciary and contractual obligations to those investors.
Medical Capital and two top executives had been sued by the U.S. Securities and Exchange Commission for fraud in July 2009, and a receiver was appointed the next month.
According to court papers, the Tustin, California-based company raised about $1.7 billion from more than 20,000 investors from 2003 until the SEC shut it down.
In December 2011, a forensic accounting report from the receiver, Thomas Seaman, estimated Medical Capital investor losses at between $839 million and $1.08 billion, and said the company used a "Ponzi-like scheme" to extract excessive fees.
According to papers filed on Thursday with the U.S. District Court in Santa Ana, California, Bank of New York Mellon agreed to settle all claims brought by investors in class-action litigation, two related litigations and the receiver.
Investors in the class action would share a $90.68 million cash payment, and their lawyers plan to seek as much as $13.6 million in fees plus $1.8 million for expenses, the papers show.
Related class-action litigation against Wells Fargo & Co, also a trustee for some Medical Capital debt, would continue, the papers show.
The settlement requires court approval.
Bank of New York Mellon denied wrongdoing, but settled to avoid the risks and costs of litigation, court papers show.
"We are pleased to be putting this matter behind us," bank spokesman Kevin Heine said.
David Azar, a lawyer for some of the investors, declined to comment.
A Wells Fargo spokesman did not immediately respond to a request for comment.
One of the Medical Capital executives sued by the SEC, former president Joseph Lampariello, pleaded guilty last May to a related criminal wire fraud charge, court records show. He has yet to be sentenced, those records show.
The case is In re: Medical Capital Securities Litigation, U.S. District Court, Central District of California, No. 10-ml-02145.
(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)
By Jonathan Stempel