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Monday, April 22, 2024 | Back issues
Courthouse News Service Courthouse News Service

Investors Say Wachovia Rolled Them

WHITE PLAINS, N.Y. (CN) - Wachovia Bank "browbeat" a family trust into investing in a "volatile basket" of hedge funds, which cost them $12.5 million and counting, according to a complaint in Westchester County Court. The trust claims the bank assured them the complex and arcane transaction" was safer than U.S. Treasury bills, and though the deal ruined the trust, Wachovia made "pure profit."

The Redwood II F Trust claims that Wachovia mishandled its $60 million of assets. Co-trustees Roger Davidson and Vickram Bedi say they told the bank they were "cautious and conservative investors, who were interested in traditional investments in growth and income-generating stocks, bonds, fixed income securities and mutual funds."

Instead, they say, Wachovia tricked them into the "complex and arcane transaction." The trustees sued Wachovia and three financial advisers, Paul, Padovani, James Cotto and Matthew Stone.

The trustees say they told Wachovia that hedge funds were too risky and told never to mention the subject again, but the bank's financial advisers continued to badger them, claiming they would hedge the trust's money against market losses.

Padovani allegedly mocked Bedi's ethnic background and conservative strategy as "the 'Hindu' approach to investing."

Bedi claims he signed a document that stated, "DRAFT - FOR DISCUSSION PURPOSES ONLY," which Wachovia then used to execute the investment.

When the bank said the transaction was a "fait accompli," and too late to terminate without substantial penalties and losses, the trustees say, they felt they "had no choice but to 'make the best of a bad situation.' "

After the trust put up $10 million, Wachovia was supposed to bear the brunt of risk in the transaction. But the bank's so-called $20 million investment was actually a loan disguised as a swap, the trustees claim.

Wachovia allegedly made "pure profit" on the deal by pitting interest on the unauthorized margin loan against return on a $30 million investment. The transaction risked 50 percent of the trust's $60 million in assets and caused staggering investment losses, the trustees say.

In addition to losing the $10 million investment and another $2.2 million seized from the trust's other accounts without authorization, the trustees, say they also face tax losses. Wachovia, though, allegedly took a $300,000 commission off the top, plus interest, annual fees and management fees.

The trustees seek rescission of contract and damages for fraud, breach of contract, conversion, conspiracy and bad faith. They are represented by James Denlea.

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