Wachovia Corporation Case 06/06/2008
AUGUST 2011 - According to the Notice:
Overview of the Action and the Settlement Class: This Notice relates to the proposed Settlements of the claims in a pending class action lawsuit brought by investors alleging that they suffered damages as a result of material misrepresentations and omissions in the offering materials for each of the Bond Class Securities in violation of the federal Securities Act of 1933. A more detailed description of the Action is set forth in paragraphs 14-31 below. The “Defendants” in the Action are: (a) Wachovia, Wachovia Capital Trust IV, Wachovia Capital Trust IX, Wachovia Capital Trust X, Wachovia Capital Markets, LLC, Wells Fargo Securities, LLC, A.G. Edwards & Sons, Inc., Wells Fargo & Company (“Wells Fargo”) (as successor-in-interest to Wachovia), G. Kennedy Thompson,
Peter M. Carlson, Ross E. Jeffries, Jr., David M. Julian, Mark C. Treanor, Donald K. Truslow, Thomas J. Wurtz, John D. Baker, II, Robert J. Brown, Peter C. Browning, John T. Casteen, III, Jerome A. Gitt, William H. Goodwin, Jr., Maryellen C. Herringer, Robert A. Ingram, Donald M. James, Mackey J. McDonald, Joseph Neubauer, Timothy D. Proctor, Ernest S. Rady, Van L. Richey, Ruth G. Shaw, Lanty L. Smith, John C. Whitaker, Jr., and Dona Davis Young (collectively, the “Wachovia Defendants”); (b) the Underwriter Defendants3; and (c) KPMG. The proposed Wachovia Settlement provides for the release of claims against the Wachovia Defendants and the Underwriter Defendants, as well as other parties related to the Wachovia Defendants and the Underwriter Defendants, as specified in the Stipulation.4 The proposed KPMG Settlement provides for the release of claims against Defendant KPMG, as well as parties related to KPMG, as also specified in the Stipulation. All persons and entities who purchased or otherwise acquired Bond Class Securities during the Settlement Class Period and were damaged thereby, except for certain persons and entities who are excluded from the Settlement Class by definition (see paragraph 32 below) or persons and entities who validly elect to exclude themselves from the Settlement Class (see paragraphs 81-83 below) will be affected by the Settlements, if they are approved by the Court, and may be eligible to receive a payment from the Settlements.
Statement of the Settlement Class’s Recovery: Subject to approval by the Court, and as described more fully below, Lead Bond/Notes Plaintiffs, on behalf of themselves and the Settlement Class, have agreed to settle all claims asserted against the Defendants in the Action in exchange for a total of $627 million in cash. Lead Bond/Notes Plaintiffs have agreed to settle with the Wachovia Defendants, and to include the Underwriter Defendants as released parties, for $590 million in cash (the “Wachovia Settlement Amount”), and have agreed to settle with KPMG for $37 million in cash (the “KPMG Settlement Amount,” and together with the Wachovia Settlement Amount, the “Settlement Amounts”). The Settlement Amounts will be deposited into an interest-bearing escrow account for the benefit of the Settlement Class Members. The Settlement Amounts together with all interest earned thereon while on deposit in the escrow account are referred to as the “Settlement Fund”. The “Net Settlement Fund” (the Settlement Fund less any Taxes, any Notice and Administration Costs and any attorneys’ fees and Litigation Expenses awarded by the Court) will be distributed in accordance with the plan of allocation that is approved by the Court, which will determine how the Net Settlement Fund shall be allocated among Settlement Class Members who are eligible to participate in the distribution of the Net Settlement Fund and who submit a timely and valid Proof of Claim and Release form (a “Claim Form”). The proposed plan of allocation (the “Plan of Allocation”) is included in this Notice at pages 10-14 below.
JUNE 2008 - According to a law firm press release, a class action has been filed against Wachovia Corporation on June 9, 2008.
In summary, the complaint alleges that Defendants misled investors by falsely representing that Wachovia had strict and selective underwriting and loan origination practices and a conservative lending approach that set it apart from other lenders. Such reassurances were repeated by defendants throughout the Class Period in order to artificially support Wachovia’s stock price in the midst of a weakening mortgage market. In response to increased market concern with the mortgage lending industry, and Wachovia’s option ARMs in particular, Wachovia falsely represented that its loan underwriting practices were much better than at other banks and that this would allow it to prosper while lenders with less exacting standards and procedures would fare much worse. In reality, Wachovia’s actual lending practices differed materially from the description of those practices in statements made to investors. The Company’s ability to weather the deterioration in the real estate and credit markets was grossly exaggerated by Defendants, at precisely the worst time, when analysts began to ask tough questions. The Company, moreover, had inadequate loan loss reserves and falsely represented that its capital position was sufficient to fund its dividend. Shortly after last assuring the market of its liquidity, the strength of its underwriting practices, and the adequacy of its reserves, Wachovia reported a surprise quarterly loss, undertook emergency measures to increase capital, and cut its dividend. On April 14, 2008, before the open of ordinary trading, Wachovia reported a loss of $350 million, or $0.20 per share, for the first quarter of 2008. The Company attributed the results to: (1) a $2.8 billion increase credit loss reserves, including $1.1 billion specifically for “Pick-A-Pay” reserve build, the lending program highly touted by the Company during the Class Period. The need to increase Pick-A-Pay reserves was attributed to Wachovia’s adoption of a “refined reserve modeling” that resulted in “higher than expected loss factors on Pick-a-Pay”; and (2) $2 billion in mark-to-market losses for mortgage backed securities, including a “$729 million loss on unfunded leveraged finance commitments.” In order to shore-up its capital, Wachovia announced the following steps: (1) reduce the dividend 41% to $0.375; and (2) plan to raise capital by $7-8 billion through public offerings. In reaction to the news, shares fell from $27.81 to $25.55 (8.13%) on abnormally high volume.
This marks the third separate action filed against Wachovia in 2008. The other two cases are related to Auction Rate Securities and stock offerings.