Journalism in the Public Interest

Wells Fargo Picks to Pay

The bank agrees to pay $590 million to settle claims alleging that Wachovia, acquired by Wells Fargo in 2008, misrepresented its financial health and the quality of its bonds.


Wells Fargo agreed to pay $590 million to settle claims alleging that Wachovia, acquired by it in 2008, misrepresented its financial health and the quality of its bonds. (Justin Sullivan/Getty Images)

On Friday, Wells Fargo disclosed that it had agreed to pay $590 million to settle class-action lawsuits brought by investors concerning bonds sold by Wachovia, which Wells Fargo acquired in October 2008.

Among the claims in the suits: that Wachovia misrepresented the quality of a mortgage portfolio it bought from Golden West Financial, a California-based savings and loan. The founders and chief executives of Golden West were Herb and Marion Sandler. Herb Sandler is ProPublica's board chairman, and the Sandler Foundation is ProPublica's founding and largest donor. The Sandlers are not accused of wrongdoing or named as defendants in the suit.

In a statement emailed to reporters, a Wells Fargo spokeswoman said the settlement did not constitute an admission of liability or any violation of law by Wachovia.

"Wells Fargo agreed to this settlement in order to avoid the distraction, risk and expense of on-going litigation," she said.

Accounting firm KPMG LLP, in a separate settlement, agreed to pay $37 million to the investor class to settle claims arising from its role as Wachovia's accountant.

The settlement will go to pension funds and individual investors that bought bonds offered between July 26, 2006 and May 29, 2008. The named plaintiffs include the Southeastern Pennsylvania Transportation Authority, the Louisiana Sheriffs' Pension and Relief Fund, the Hawaii Sheet Metal Workers Pension Fund and the Orange County Retirement System in California. The bonds had a total face value of more than $35 billion.

The three class-actions, which were consolidated into a single case, did not claim that Wachovia had engaged in fraud. Instead, investors alleged that Wachovia failed to disclose the true quality of its bonds and the bank's financial health at the time of the purchases. In particular, the lawsuit focuses on a $120 billion portfolio of loans Wachovia purchased from Golden West, an $8 billion portfolio of collateralized debt obligations, and $15 billion of "goodwill" Wachovia recorded on its balance sheet from the Golden West acquisition.

In order to establish that Wachovia should have known that what it was selling was impaired, the consolidated complaint, filed in federal court in Manhattan, marshaled more than 50 unnamed former employees of Golden West and Wachovia. Their statements, sprinkled through the complaint, paint a graphic picture of a precipitous drop in standards that coincided with the peak of the housing bubble.

The suit focused heavily on so-called "Option ARMs," an adjustable rate mortgage product marketed by Golden West and then Wachovia under the brand "Pick-A-Pay," which allowed borrowers to defer payments on their loans. If the borrower failed to pay the interest, it was added to the principal. The lawsuit alleges that by 2006, Golden West's underwriting standards had declined. Many of the borrowers who purchased Pick-A-Pay loans did not meet income and other qualifications, the suit contends.

The Sandlers declined to comment on the allegations in the complaint.

Once Wachovia purchased Golden West for $24.3 billion, it rapidly grew the Pick-A-Pay program, the lawsuit said. The Golden West sale was announced in May 2006 and closed that October. In 2007, Wachovia extended an additional $33.4 billion of these loans. As part of this push for growth, Wachovia even marketed loans to borrowers that Golden West had rejected.

In January 2009, upon acquiring Wachovia for $12.7 billion, Wells Fargo declared $59.8 billion of the bank's Pick-A-Pay portfolio credit impaired and wrote down $25.5 billion of it. It isn't clear how much of the decline in value was due to the alleged faulty underwriting and how much to the general collapse of the U.S. housing market.

The settlement, the result of a three-year legal battle, is among the largest to date for a class-action lawsuit over the sale of securities in the run-up to the financial crisis. The plaintiffs' attorneys will divide up to $103 million in fees and litigation expenses up to $1.8 million.

In regulatory filings, Wells Fargo stated that the payout, which must be approved by a judge, will "not have a material adverse effect on [the bank's] consolidated financial position."

Class-action attorneys vow more such legal actions are to come against other financial institutions. "This is potentially the tip of the iceberg with respect to the credit crisis generally," said Darren Robbins, one of the attorneys involved in the case.

Barry Schmittou

Aug. 9, 2011, 11:01 a.m.

Wachovia also received a Non Prosecution Agreement for $110 million in money laundering, after they gave over one million in political contributions.

AIG, MetLife, Prudential, and Unum Insurance Have All Received Multiple Non Prosecution Agreements !!

JP Morgan Rigged Municipal Bids in 31 States and No One Was Prosecuted !!

In 2006 the Securities Exchange Commission wrote :

“AIG will pay in excess of $1.6 billion to resolve claims related to improper accounting, bid rigging and practices involving workers’ compensation funds.”

(end of quote)

No one was charged with a crime for this huge bid rigging of Workers Comp insurance policies !!

Two years later AIG received $182 Billion of taxpayer money to bail them out !!

While bids are being rigged injured workers lives are being destroyed by insurance companies ignoring medical records.

WFAA-TV wrote the following quotes :

“a remarkable number of Texans committed suicide because they could no longer endure the pain caused by their injuries and they had been repeatedly turned down for worker’s comp care.”

“Several stories detail possible fraud or questionable actions practiced by at least several major insurance carriers, but ignored and unpunished by regulators. The WFAA-TV series has revealed how some insurance companies send peer review doctors medical files “stripped” of records important to the possible approval of workers’ comp claims. Those peer review doctors who routinely deny care receive lucrative contracts, while those who approve care fail to be rehired.”

(end of quotes)

AIG, JP Morgan and Prudential have received multiple Non Prosecution agreements from the DOJ and SEC   !!!!

Three Insurance Companies Get Non Prosecution agreements for bid rigging health and disability policies !!

While AIG was bid rigging in Workers Comp, Prudential, MetLife and Unum insurance get Non Prosecution agreements for identical illegal kick backs !!

This was MetLife’s third Non Prosecution agreement for illegal kick backs in the sales of policies, but the DOL/DOJ will do nothing about crimes committed against very sick patients who file claims on the policies that MetLife committed frauds to sell !!

In a claims decision U.S. District Judge Richard Enslen wrote :

“MetLife and its henchmen should appreciate that such conduct may itself precipitate the suicide death of a person who has placed implicit trust in their organization to foster mental health.

MetLife also pays doctors who ignore brain lesions, Multiple Sclerosis, cardiac conditions of many patients and a foot a new mother broke in 5 places as evidenced in quotes from numerous U.S. Judges and Doctors !!

ProPublica has my links to the evidence and I pray ProPublica will stop these crimes that multiple insurance companies are committing in five different types of insurance because thousands of lives are being destroyed every year !!!!

To see the Judges quotes please google search these words : Numerous Judges and Doctors Quotes Prove MetLife Destroys Lives

Why just pay investors when they admit wrong doings? What about us little people that suffer everyday!! Soon they’ll all come forward pay their fines and people will still be put out in the street! Morgan Chase, Bank of America(the worst) All I can pray is they will get theirs unless they are like Casey Anthony and just walk away after ruining lives!  We need to sue this Banks because no amount of publicity seems to bother them. They are dirty, corrupt and their time will come. The Government needs to step in and making them stop lying and hold them responsible.  The fiasco effect everyone!!!  They did not just use the investors money, they used our money also to bail them out and they treat us like garbage. Get your governors, senators, States Attorneys and put an end to these lies!


Aug. 10, 2011, 10:42 a.m.

Its staggering ,as a SCOTS investor who was roped in by liars /cheating bank managers ,bent attorneys ect ,I am astonished at NO ARRESTS !!!!!!!!!!!i IF I WALKED INTO A BANK AND STOLE 100 $  I would be jailed ,these guys stole billions ,result BONUSES .No wonder your countrys goin down the pan ,YOU NEED ACCOUNTABILITY

mario m. garcia

Aug. 11, 2011, 5:21 p.m.

any body going to jail? of course not. they are above the laws.a..,hole.

Bankers are wankers.

The government is able to raise their debt ceiling but we, the taxpayers, get poor credit ratings that are subsequently lowered because we have a high debt ration. Wow! Can you believe that?  This fact is not just an analogous similarity,  but reality.  Credit rating companies suck!!  There needs to be a revamping of this financial sector; what ever happened to the guy who always pays his bills on time every time?  Isn’t that credible credit history?  No - they now want to micro manage us.  They tell us that since our debt ratio is high that therefore we are a bad risk - yet we never miss and somehow always come up with a way to meet our obligations on time, always.  Close then down and invent a better way of calculating credit.  On top of that they are simply out for one thing alone - to make money.  Now they charge for a credit report.  When will we open our eyes.  It’s time for a financial revolution in this country.  Any heavy weight investors out there willing to back me??

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