Minnesota-based Wells Fargo & Co must face a lawsuit by a group of institutional investors that claim the bank marketed a risky securities-lending program as safe. The common issue of the case is whether Wells Fargo "knew or should have known that the investments it selected did not comport with investment mandates."
The lawsuit was first filed in 2010 by a Michigan pension fund, the City of Farmington Hills Employees Retirement System, on behalf of more than 100 other institutional investors. In the suit the plaintiffs alleged Wells Fargo breached its fiduciary duties and committed fraud. The investors sought permission from the court to pursue the case against Wells Fargo as a group, and U.S. District Judge Donovan Frank in St. Paul agreed to certify them as a class.
According to the group, Wells Fargo “touted” its securities-lending program “as a highly secure way for its institutional clients to maximize portfolio returns,” according to the complaint. Instead, the pension fund said, “Wells Fargo invested a substantial portion of the collateral in extremely risky securities.” The investors also claimed that Wells Fargo concealed investment performance from class members to prevent them from exiting the securities-lending program.
A spokesperson for the bank said they would appeal the decision immediately. Wells Fargo denies all the allegations in the complaint and plans to defend the lawsuit “vigorously.”
Wells Fargo lost a jury verdict in 2010 of about $30 million to four Minnesota nonprofits making similar claims about the securities-lending program. In that case, the Minnesota Workers' Compensation Reinsurance Association and three charitable foundations sued in 2008, claiming the bank failed to disclose the deteriorating value of the investments until it was too late and blocked them from getting out of the program.
Fiduciary duty and fraud claims are complex and difficult to prove which is why you and your business need the best business litigation attorneys representing your interests. Contact Hance Law Firm and let us fight for you.