Wells Fargo Settles Securities Lending Case for $62.5M
Wells Fargo & Co. (WFC) will pay $62.5 million to settle a class action securities fraud case. A group of retirement funds claim that the bank committed fraud and breached its fiduciary duty in its securities lending program. Now, a district court judge must preliminarily approve the agreement.
Wells Fargo promoted its securities lending program to large institutional investors, including insurance companies, pension funds, and foundations. The bank would lend the clients’ securities to third-party brokerage firms. For lending the securities, the bank was given cash collateral. It then invested the funds, sharing returns with the clients. The program was marketed as a means for institutional investors to make additional funds to cover the cost of having Wells Fargo maintain their investment portfolios.
The plaintiffs of this lawsuit include the Arizona State Carpenters Defined Contribution Trust Fund, the Arizona State Carpenters Pension Trust Fund’s trustees, a Michigan pension fund, and the City of Farmington Hills Employees Retirement System.
According to the plaintiffs, Wells Fargo told them its securities lending program was a conservative vehicle that would allow them to make extra money. However, between 2005 and 2008, the bank’s managers made risky bets on complex illiquid investments. This included placing the retirement funds’ money in hedge fund-run structure investment vehicles and subprime mortgage pools. When the financial crisis happened, a lot of the deals turned toxic or failed.
By settling this latest securities lending case, Wells Fargo is not denying or admitting to any wrongdoing. Meantime, there are other lawsuits over the lending program that are still pending.
While the bank won one of the cases in court last year, a jury that presided over another lawsuit awarded the plaintiffs, a group of charitable foundations in Minnesota, $57 million.
City of Los Angeles, CA Sues JPMorgan for Predatory Lending
Los Angeles, CA is suing JPMorgan Chase & Co. (JPM). The city says that the bank took part in mortgage lending practices that were discriminatory. The practices helped to raise the foreclosure rates among minority borrowers in the city.
According to the predatory lending lawsuit, JPMorgan’s ongoing mortgage discrimination practice went on in L.A. for years, since at least 2004. Alleged practices included reverse headlining—this involves placing borrowers in minority neighborhoods in loans that are out of their budget because of their ethnicity or race—and redlining—when a minority borrower’s credit is denied even when others were approved under the same terms.
The city of L.A. wants punitive and compensatory damages. It also has filed similar lawsuits against Wells Fargo, Citigroup (C), and Bank of America Corp. (BAC). This week, Wells Fargo lost in its efforts to get that lawsuit dismissed.
Wells Fargo will pay $62.5 million to settle suit over securities lending, StarTribune, May 31, 2014
Los Angeles sues JPMorgan, alleges discriminatory lending, Reuters, May 30, 2014
Wells Fargo to pay $62.5 million to settle securities lending lawsuit, The Boston Journal, May 30, 2014
More Blog Posts:
Wells Fargo Must Face Los Angeles’s Lawsuit Over Predatory Loans, Stockbroker Fraud Blog, May 30, 2014
FINRA Arbitration Panel Says Wells Fargo Must Repurchase $94M of Auction-Rate Securities from Investors, Stockbroker Fraud Blog, December 29, 2013
JPMorgan Will Pay $614M to US Government Over Mortgage Fraud Lawsuit, Stockbroker Fraud Blog, February 8, 2014