Wells Fargo Finalizes Securities Lending Lawsuit in Minnesota

The U.S.District Court in Minnesota has granted final approval of a $62.5 million settlement in a class action lawsuit against Wells Fargo, related to the bank's securities lending program.
By Jake Safane(2147484770)
The U.S.District Court in Minnesota has granted final approval of a $62.5 million settlement in a class action lawsuit against Wells Fargo, related to the bank’s securities lending program.

The case, brought by the City of Farmington Hills Employees Retirement System (from Michigan) and the Arizona State Carpenters Trust Fund, represented 93 parties in total, including pension funds, corporations, insurance companies and others who participated in Wells Fargo Bank’s securities lending program from January 1, 2006 to when the lawsuit was filed in October 2010.

After deducting a third of the settlement for attorney fees, plus over $2 million in litigation expenses and $100,000 for the services and costs incurred by the named plaintifs, Farmington and Arizona, ($50,000 each), the 93 parties will split the remaining sum of around $39.5 million.

Wells Fargo and the plaintiffs agreed to this settlement on a preliminary basis in April, just two days before the lawsuit was set to go trial. Now, U.S. District Judge Donovan Frank has granted full approval of the settlement terms. 

The lawsuit claimed that Wells Fargo breached its fiduciary duty to securities lending clients who suffered losses, because the bank’s collateral reinvestment program purchased high-risk, long-term securities, according to the plaintiffs.

Yet in reaching the settlement, Wells Fargo denies committing any violation of law and says it reached the settlement only to end the expense and distraction of further litigation.

“We are pleased to reach a settlement of this lawsuit, for Wells Fargo and our clients that we served for many years through our securities lending program,” says a company spokesperson. “Wells Fargo was focused at all times on serving our clients’ interests and we worked very hard and responsibly to achieve the best results for all of the participants in the program during very difficult economic conditions. This conservative approach resulted in plaintiffs’ Wells Fargo Securities Lending portfolios having minimal losses of five percent or less, compared to substantial losses experienced by other investors during the height of the financial crisis.”

The plaintiffs also decided to settle partly because Wells Fargo won a similar case against Blue Cross Blue Shield in Minnesota court last year, 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.

A number of Wells Fargo’s securities lending employees ended up being hired last year by BNP Paribas, which has since launched its own securities lending business in the U.S.