Wells Fargo has been ordered 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.
Defending lawyer Robert Weinstine, described as creative and relentless by Chambers USA, said Wells Fargo warned in 2007 that there would be more losses if the non-profits stayed in the securities lending program, according to local news reports.
The WCRA terminated participation in the Wells Fargo securities lending program in March 2009. As of December 2008, the Association had equity and fixed income securities with fair values of approximately $75 million on loan.
Wells Fargo is not alone in defending itself against lawsuits from irate beneficial owners. Since September 2008, Northern Trust, Wachovia (now owned by Wells Fargo) and J.P. Morgan have been sued by US pension funds, many of which are still ongoing. Northern Trust recently had a counterclaim against BP North America dismissed; BP filed a lawsuit against Northern Trust in October 2008 alleging excessive and inappropriately risky securities lending activity.
Along with WCRA, the three other plaintiffs were the Minnesota Medical Foundation, the Minneapolis Foundation and the Robins, Kaplan, Miller & Ciresi Foundation for Children.
Lawsuits Against Custodians From Beneficial Owners
– The University of Washington filed a lawsuit against Northern Trust alleging that the firm failed to honor the universitys request to withdraw from the securities lending program in September. The case was settled in October 2008; the terms remain confidential. September 2008
– BP Corporation North America filed a lawsuit against Northern Trust alleging excessive and inappropriately risky securities lending activity. October 2008
– FedEx filed a lawsuit on behalf of its pension plan against Northern Trust over alleged losses in its securities lending program. December 2008
– Carolinas HealthCare System sued Wachovia Corp, alleging losses valued at $19 million over risky cash-collateral reinvestment activity. January 2009
– A participant of ExxonMobils 401(k) filed lawsuit against Northern Trust alleging losses through its securities lending program. March 2009
– Imperial County Employees Retirement System, a Californian pension fund, filed a class action lawsuit against J.P. Morgan on behalf of plans that invested in its securities lending program that allege they lost most of their value after the collapse of Sigma Finance Inc. April 2009
Related News: “Securities Lending: Is it safe to go back in?”