Wells Fargo Agrees to Settle Securities Lending Suit for $62.5 Million

Wells Fargo has agreed to pay $62.5 million to settle a class action lawsuit related to its securities lending program, brought in Minnesota by The City of Farmington Hills Employees Retirement System and representing 93 parties in total.

Just two days before the lawsuit was set to go trial, the two parties reached a settlement out of court with the help of an arbitrator, and they have since presented the settlement to the court, for which a preliminary approval hearing is set for June 5.

The lawsuit, originally filed in October 2010, claims that Wells Fargo breached its fiduciary duty to securities lending clients who suffered losses (anyone affected from 2006 until when the lawsuit was filed), because the bank’s collateral reinvestment program purchased high-risk, long-term securities, according to the plaintiffs.

However, court papers say that Wells Fargo denies committing any violation of law and reached the settlement only to end the expense and distraction of further litigation.

The plaintiffs also recognize that Wells Fargo won a similar case against Blue Cross Blue Shield in Minnesota court less than a year ago, so without this settlement “Class Members’ ultimate recovery of any amount of their losses was very uncertain,” say court documents.

As previously decided, Wells Fargo is winding down its securities lending program, as the bank sold the program to Citibank in 2011 and has only run a temporary, limited program since then, with the plan being to end it completely in 2015. When the program fully ends, participants will be required to cover any collateral deficiencies. 13 members of the class action suit are part of this temporary program, and thus the settlement payout will help them offset the costs of meeting any collateral shortfall.