Wells Fargo and Wachovia Sued by LBBW Luxemburg Over Alleged $1.5B Securities Fraud

LBBW Luxemburg SA has filed a securities fraud lawsuit against Wells Fargo & Co. (WFC) and its unit Wachovia Corp. over an alleged $1.5 billion securities fraud scam. The case involves transaction in 2006 involving Wells Fargo selling what they allegedly touted as securities with high ratings to LBBW and other customers. LBBW, a Landesbank Baden-Wurttemberg subsidiary, bought $40 million of these residential mortgage-backed securities.

Now, the European bank is contending that the underlying mortgages were riskier than represented and not worth their buying price. Within a year, the securities had defaulted. LBBW is alleging common law fraud, breach of contract, constructive fraud, negligent misrepresentation, and breach of fiduciary duty.

Per the plaintiff’s attorneys, the alleged financial fraud was discovered after the SEC investigated a $5.5 million investment that the Zuni Indian Tribe’s employee pension fund made. The Securities and Exchange Commission had accused Wachovia of selling overpriced equity in Grant Avenue II, a collateralized debt obligation, to the tribe and another investor. The Commission contended that after marking down some of the equity to 52.7 cents on the dollar, Wachovia charged 90 cents and 95 cents on the dollar. The bank was also accused of misleading investors in Longshore 3, another CDO, by saying that assets had been acquired from affiliates at prices that were fair market when, actually, claims the regulator, 40 securities had been moved at prices that were above market and Wachovia moved assets at prices that were stale so it wouldn’t have to report the losses.

The SEC said that while it did not consider Wachovia to have acted improperly in the way it structured the CDOs, the bank violated investment protection rules by using stale prices, even as buyers were being told the prices were fair market value, and charging excessive markups in secret. The Commission found that the Zuni Indians and other investors suffered financial losses as a result. Last year, Wachovia agreed to pay $11 million to settle charges accusing it of violating federal securities laws in its sale of MBS leading up to the collapse of the housing market.

European Bank LBBW Sues Wells Fargo Over Alleged $1.5 Billion Securities Fraud, The Sacramento Bee, October 1, 2012

German bank sues Wells Fargo alleging $1.5 billion securities fraud, San Francisco Business Times, October 2, 2012

Wells Fargo Settles Case Originating At Wachovia, The New York Times, April 5, 2012

More Blog Posts:
Lehman Brothers Australia Found Liable in CDO Losses of 72 Councils, Charities, and Churches, Institutional Investor Securities Blog, September 25, 2012

REIT Retail Properties of America’s $8 Public Offering Results in Major Losses for Fund Investors, Institutional Investor Securities Blog, April 17, 2012

Texas Securities Fraud: Investor Sues Behringer Harvard REIT I, Stockbroker Fraud Blog, September 26, 2012

As you can see, five years after the subprime mortgage crisis, institutional investors, as well as individual investors, are still seeking to recoup their losses. At Shepherd Smith Edwards and Kantas, LTD, LLP, we represent banks, financial firms, corporations, partnerships, large trusts, charitable organizations, school districts, municipalities, high net worth individuals, and private foundations seeking to recover their losses from securities fraud and other illegal/improper actions committed by financial firms and their representatives in the sale of CDOs, MBS, RMBS, REITs, and other investment products.

Contact our securities fraud law firm today.