Wells Fargo is set to enter a securities lending-related lawsuit brought against it by a Michigan based pension fund on behalf of more than 100 institutional investors after a U.S. district court judge in Minnesota yesterday certified the suit.
The City of Farmington Hills Employees Retirement System filed the suit in 2010, claiming the bank touted a high-risk securities lending program it claimed was safe. The System alleges that the bank breached its fiduciary duty by investing in these securities. The class action dates back to 2006 and was subject to a statute of limitations. The securities lending program existed for more than 25 years prior to that time.
Judge Donovan W. Frank of the US District Court in Minnesota, yesterday certified the suit as a class action, upholding the retirement systems calling into question whether Wells Fargo knew or should have known that the investments it selected did not comport with investment mandates.
Frank said the fund and the investors should proceed with the case as a group as their complaints against Wells Fargo were similar: Class members who may not otherwise have the means to litigate their claims will likely benefit greatly from a class action, and a class action will ensure that class members who are otherwise unaware that they possess a claim will have their rights represented.
Specifically, the retirement system’s argument is that Wells Fargo failed to ensure that the collateral funds were invested in safe, liquid, short-term investments, and instead improperly invested proceeds in high-risk, long-term securities. Further, the fund argues that Wells Fargo systematically obscured the effects of its mismanagement by concealing investment performance information from the class members in order to prevent them from exiting the securities lending program. The plaintiff has the following six counts against Wells Fargo: Breach of Fiduciary Duty, Breach of Contract, Violation of Minnesota Prevention of Consumer Fraud Act, Unlawful Trade Practices, Deceptive Trade practices and civil theft.
Wells Fargo said in a statement: We are disappointed in the courts decision to certify a class in this case and plan to appeal the decision immediately. Further, Wells Fargo categorically denies the allegations made in this lawsuit and will vigorously defend against it.
The plaintiff in the class action suit is the City of Farmington Hills Employees Retirement System while the defendant is Wells Fargo Bank. The suit, No. 10-4372, was filed in the U.S. District Court for the District of Minnesota.
In 2010, Wells Fargo was order to pay $30.1 million to the Minnesota Workers Compensation Reinsurance Association (WCRA) and three other non-profit organizations for marketing risky securities lending programs. A St. Paul state jury also found the bank guilty of blocking attempts to retrieve funds, and failing to notify clients of significant losses. The non-profits originally asked for over $400 million, but jury only awarded $14.1 million for the breach of fiduciary duty and $4 million for each plaintiff for consumer fraud. Juror Susan Lundy told Minnesota Public Radio: “We didn’t feel like it was an extraordinary case for something that would qualify for punishing them further.” The nonprofits accused Wells Fargo of investing securities lending collateral in structured investment vehicles that collapsed during the sub-prime crisis, rather than safe, liquid instruments promised by the bank.
(JDC)