Wells Fargo & Co. faces a second Minnesota trial over claims by institutional investors that the bank marketed a risky securities lending program as safe and cost them millions of dollars in losses.
The case is one of at least five in Minnesota against Wells Fargo over its securities lending.
Wells Fargo lost the first to go to trial in 2010, when a state court jury awarded Minnesota Workers' Compensation Reinsurance Association and three charitable foundations about $30 million, a judgment that was upheld on appeal.
Wells Fargo is scheduled for a third trial on the same claims from different plaintiffs in September, brought as a class action on behalf of about 100 institutional investors. Two other cases are also pending in federal court, including one by Minnesota Life Insurance Co. seeking $40 million in damages.
The trial, set to begin Monday before U.S. District Judge Donovan W. Frank in St. Paul, covers allegations from Blue Cross Blue Shield of Minnesota, the $300 million El Paso County Retirement Plan, Colorado Springs, Colo., and 10 other non-profit groups seeking unspecified millions of dollars in losses plus punitive damages.
Wells Fargo engaged in “systematic, intentional and unlawful conduct — including breaches of fiduciary duty, breaches of contract, and fraud — in a multibillion-dollar securities lending program,” lawyers for the plaintiffs said in the complaint.
The alleged misconduct included “a pattern of improper investments in risky securities,” failure to disclose material information about the investments to the plaintiffs, and a cover-up of wrongful actions, the lawyers said.
“Wells Fargo was a custodian, an agent, a safe-keeper of these securities they were going to loan out,” Mike Ciresi, a lawyer for the plaintiffs, said at a June 5 pretrial hearing. “Wells Fargo shouldn't have lost any money in this program, and they didn't have to.”
Wells Fargo has denied the claims, blaming any losses on the financial crisis.
“The allegations made by the plaintiffs are without merit,” Laura Fay, a spokeswoman for the bank, said in an e-mailed statement.
“The investments made by Wells Fargo on behalf of clients in the securities lending program were in accordance with investment guidelines and were highly rated and suitable at the time of purchase,” Ms. Fay said.