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Class Takes On Botched Wells Fargo Investments

(CN) - More than 100 investors who claim that Wells Fargo Bank played fast and loose with money meant for safe, short-term investments can sue as a class, a federal judge ruled.

The City of Farmington Hills Employees Retirement System, which is the lead plaintiff in the case, claims that they executed lending agreements with Wells Fargo that said "the prime consideration for the investment portfolio shall be safety of principal and liquidity requirements." But the bank nevertheless invested their money in long-term, high-risk investments that resulted in significant losses.

In a motion to certify their class action, the investors noted that each party entered into an investment agreement based on the aforementioned language, which stipulated that safe, short-term investments would be used to generate a return.

But Wells Fargo argued the fiduciary duty claims of each investor was distinctly different because the investors were divided into trust and non-trust pools.

U.S. District Judge Donovan Frank in Minneapolis sided with the investors Tuesday, finding that "a common mandate to ensure liquidity and safety of principal existed across all of the funds."

Frank also rejected the bank's claim that the withdrawal times of each investor required separate lawsuits. "The time frame in which individual class members sold their securities may be an issue when determining damages, but the class members are pursuing the same legal theories and will likely utilize the same evidence regarding Wells Fargo's monitoring of the investments and alleged failure to invest the collateral in accordance with the investment guidelines," he wrote.

Wells Fargo owed the same duties to all of the investors involved in its lending agreements, the court found.

Therefore, "Wells Fargo's actions and conduct, not the conduct of any individual class member, is the focal point of the fiduciary duty claim," Frank wrote.

"Thus, the court concludes that class members can rely on generalized evidence to prove that Wells Fargo breached its fiduciary duty to the class as a whole," he added.

The investors' consumer fraud claims also meet the criteria for class certification, Frank found, rejecting Wells Fargo's insistence on individual reliance to prove such claims.

Generalized evidence can be used on behalf of the class to prove the fraud claim, according to the decision. In this case, each investor has agreement with the bank that said: "The prime consideration for the investment portfolio shall be safety of principal and liquidity requirements."

The class intends to include all participants in Wells Fargo's securities-lending program from Jan. 1, 2006, to the present, who suffered losses because of the bank's purchase of high-risk investments.

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