$627 Million “Record Settlement” Obtained in Wachovia – Largest Securities Act Recovery to Date
On August 5, 2011, Robbins Geller Rudman & Dowd LLP announced a record-breaking settlement with Wachovia successor Wells Fargo & Company and Wachovia auditor KPMG LLP. Under the terms of the settlement, Wells Fargo agreed to pay $590 million while KPMG agreed to pay an additional $37 million, bringing the total recovery for investors to an unprecedented $627 million. The settlement is one of the 15 largest securities class action recoveries in history and the largest recovery ever in a case brought solely under the Securities Act of 1933. The settlement is also one of the biggest securities class action recoveries arising from the credit crisis. Robbins Geller is one of three co-lead counsel representing the City of Livonia Employees’ Retirement System, Hawaii Sheet Metal Workers Pension Fund, and the investor class.
Between July 31, 2006 and May 29, 2008, Wachovia sold investors $35 billion worth of bonds and preferred securities pursuant to five registration statements and various prospectuses and the SEC filings incorporated into those registration statements (the “Offering Materials”). Plaintiffs alleged that the Offering Materials misrepresented and/or omitted material facts concerning the nature and quality of Wachovia’s “Pick-A-Pay” mortgage loan portfolio, including its “pristine credit quality.” In reality, Wachovia employed high-risk underwriting standards and made loans to subprime borrowers. Plaintiffs also alleged that the Offering Materials omitted material facts concerning Wachovia’s exposure to subprime mortgage-related investments retained on its balance sheet, including billions of dollars in collateralized debt obligations, misstated the company’s loan loss reserves, and overstated the “goodwill” it carried on its balance sheet relating to the 2006 acquisition of Golden West.
On March 31, 2011, the Honorable Richard J. Sullivan of the United States District Court for the Southern District of New York denied in substantial part Wachovia and the individual defendants’ motion to dismiss, finding that plaintiffs, at a minimum, “stated a material misrepresentation claim based on the [Loan-to-Value] ratios reported in the offering documents.” Although the court did dismiss certain offerings for which plaintiffs did not have standing, it allowed the addition of three named plaintiffs, including City of Livonia Employees’ Retirement System and Hawaii Sheet Metal Workers Pension Fund. The court also denied the underwriter defendants’ and KPMG’s motions to dismiss in their entirety.
In re Wachovia Preferred Securities and Bond/Notes Litigation, No. 09-cv-6351 (S.D.N.Y.).
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