Wachovia and KPMG will pay $627 million to settle a securities class-action lawsuit claiming the bank misrepresented the value of a mortgage-loan program, confirmed Max Berger, senior partner at Bernstein Litowitz Berger & Grossmann, co-lead counsel for the plaintiffs.
The $9.3 billion Orange County (Calif.) Employees' Retirement System, the $1.4 billion Louisiana Sheriffs' Pension and Relief Fund and the Southeastern Pennsylvania Transportation Authority were the lead plaintiffs in the case filed in August 2008.
The lawsuit claimed Wachovia “misrepresented and/or omitted to disclose material facts concerning the nature and quality of Wachovia's multibillion dollar option-ARM (adjustable-rate mortgage) Pick-A-Pay mortgage loan portfolio, and that Wachovia's publicly disclosed loan loss reserves were materially inadequate at all relevant times,” according to a news release from Bernstein Litowitz; Kessler Topaz Meltzer & Check; and Robbins Geller Rudman & Dowd, co-lead counsels.
The claim involved public offerings between July 31, 2006, and May 29, 2008. Wachovia was purchased by Wells Fargo in October 2008.
In its 10-Q report filed with the Securities and Exchange Commission Friday, Wells Fargo announced it had agreed in principal to the settlement, which has been reflected in the firm's financial statements and will “not have a material adverse effect on Wells Fargo's consolidated financial position.”
In the settlement, Wachovia will pay the plaintiffs a total of $590 million with Wachovia and auditor KPMG, $37 million.
“Wells Fargo agreed to this settlement in order to avoid the distraction, risk and expense of on-going litigation,” according to a statement from the company. “The settlement agreement does not constitute an admission of Wells Fargo of liability or any violation of law by Wachovia.”