Wells Fargo Sets Pact With Issuers

WASHINGTON — Wachovia Bank NA, now Wells Fargo & Co., has reached a tentative settlement of a consolidated class- action suit with municipal issuers over antitrust charges of bid-rigging for municipal investment, derivatives and other contracts.

Wells Fargo disclosed the tentative settlement in a quarterly financial filing with the Securities and Exchange Commission. It was reached with attorneys for the issuers on Oct. 21 but still must be approved by a federal judge in New York.

Under the settlement, the firm would pay the greater of $37 million or 65% of restitution of any future settlement with the state attorneys general. The state AGs have been conducting their own investigation of bid-rigging. It is not clear when that probe might end.

“We are pleased to resolve this legacy of Wachovia matter, which relates to events that occurred prior to the Wells Fargo merger,” said Wells Fargo spokeswoman Mary Eshet. Wachovia was merged with Wells Fargo in December 2008.

Eshet says the settlement does not resolve other ongoing probes. “Wells Fargo continues to cooperate with regulators as the investigations proceed,” she said.

The Justice Department, SEC, banking regulators and state attorneys general are conducting either criminal or civil investigations of many of the major Wall Street firms and some regional ones, as well as investment advisors, over bid-rigging in the muni market.

Federal regulators have already reached settlements of criminal and civil charges with Bank of America Securities LLC, now Bank of America Merrill Lynch, which last December agreed to pay about $138 million; UBS Financial Services Inc., which agreed in May to pay about $160 million; and JPMorgan Chase & Co., which said in July that it would pay $228 million.

Hilary Scherrer, an attorney with Hausfeld LLP in Washington who represents some of the issuers in the consolidated class action suit said the number of the issuer defendants includes “thousands and tens of thousands.”

She said the firm plans to file a document later this week or next week with the U.S. District Court for the Southern District of New York in Manhattan seeking preliminary approval of the tentative settlement with Wells Fargo. Notices will then be sent out to issuers who did transactions with the firm and it will be up to them to opt out of the settlement agreement, Scherrer said.

The named issuer plaintiffs in the consolidated lawsuit include: Baltimore, the University of Mississippi, the University of Mississippi Medical Center, the University of Southern Mississippi, the Mississippi Department of Transportation, the Central Bucks School District in Pennsylvania, and the Bucks County,  Pa., Water and Sewer Authority. Issuers in other consolidated suites included local goverments in California and Virginia.

For Wells Fargo, the settlement would bring to a close a lawsuit that was first filed against some three dozen broker-dealers and banks in March 2008 but dismissed in April 2009 by Judge Victor Marrero, who sits in the federal court in Manhattan. Marrero allowed the issuers to revise and refile their suit against Wachovia and 16 other broker-dealers, banks and investment firms in June 2009.

The revised suit contained more specific allegations based on information obtained from an unidentified confidential witness at B of A Merrill. The bank has cooperated with the issuers in the suit, as well as with the Justice Department and SEC. It obtained indemnity against criminal charges from Justice for being the first firm to offer cooperation after the probe began.

All of the issuer suits against the firms were consolidated in the federal court in Manhattan. Wells Fargo would be the second firm to agree to settle with issuers.

Earlier this year, Morgan Stanley agreed to pay $6.5 million to settle charges with Hinds County, Miss., and other issuers in the class action suit. Hausfeld’s Scherrer expects the settlement with Morgan Stanley will be approved by Marrero on Nov. 23.

Upcoming Events

Already a subscriber? Log in here
Please note you must now log in with your email address and password.