In Manhattan, U.S. District Judge Katherine Polk Failla ruled that a few dozen funds may pursue their mortgage-backed securities fraud lawsuits against Wells Fargo & Co. (WFC) According to Reuters, five lawsuits are involved and plaintiffs include funds from Prudential Financial Inc.(PRU), BlackRock Inc. (BLK), TIAA-CREF, and Pacific Investment Management Co. (PIMICO) Judge Failla also said that the National Credit Union Administration (NCUA) could proceed with its MBS fraud claims against the San Francisco-based bank, which it filed on behalf of five credit unions that failed after they bought $2.4B in residential mortgage-backed securities.
The funds are seeking to hold Wells Fargo liable for breach of contract and conflict of interest involving over four dozen trusts, breach of due care, and breach of fiduciary duty. Failla, however, did not allow claims contending violation of a NY law related to mortgage trusts, as well as claims of general negligence, to proceed.
The investors contend that the bank took “virtually no action” to make sure that lenders either bought back the faulty securities or fixed the loans that were backing the securities once they knew that the loans were poorly underwritten or had defaulted. They accused Wells Fargo of failing to act despite being aware of these problems.
The institutional investors believe that the bank’s reluctance to take action was because it feared that its own “misconduct” involving residential mortgage backed-securities trusts would be discovered. They also contend that Wells Fargo did not want to hurt its business ties with servicers and lenders.
Judge Failla also refused to dismissed Commerzbank AG (COM)’s mortgage-baked securities case against Wells Fargo, which it is accusing of not making sure loans fulfilled certain standards and failing to make mortgage lenders compensate investors for poor quality loans, among other allegations.
These mortgage-backed securities lawsuits are just some of the litigation with which Wells Fargo is contending. This week, federal regulators ordered the bank to rehire a “high-level banker” who turned whistleblower on two employees he allegedly suspected of committing mail fraud, wire fraud, and bank fraud. The banker was fired in 2010 after reporting his concerns to a supervisor.
In addition to reinstating him, Wells Fargo must pay the banker $5.4M in damages. The bank, however, is considering whether to appeal the ruling.
Wells Fargo is also continuing to deal with litigation related to its creation of up to two million unauthorized customer accounts.
If you are an institutional investor who has suffered losses due to mortgage-backed securities fraud, contact The SSEK Partners Group today.
Wells Fargo must face litigation on defective mortgages: U.S. judge, Reuters, March 30, 2017
NCUA Sues Wells Fargo as Trustee of Mortgage-Backed Securities, NCUA, December 23, 2014
Commerzbank sues Wells Fargo over losses on mortgage-backed securities, Los Angeles Times, December 29, 2015