No new trial against Wells Fargo in $8.2m securities lending claim

Blue Cross Blue Shield and 11 other institutional investors have failed in their attempt to open a new lawsuit against Wells Fargo in relation to losses of over $8.2m incurred in the bank’s securities lending programme during the financial crisis.

The original lawsuit, which a jury found in favour of Wells Fargo in August 2013, was filed in September 2011 and centred on the bank ‘grossly mismanaging’ the investments in its securities lending programme, resulting in the losses. Blue Cross alleged that Wells Fargo had not disclosed the full details of the securities lending programme, having advertised it as a conservative vehicle whilst actually investing in far riskier, highly illiquid securities.

The jury in August 2013 sided with Wells Fargo, although Blue Cross was encouraged to attempt to get a new trial against the bank courtesy of US district judge, Donovan W. Frank’s comments after the jury had sided with the bank. He said that he would have ruled against Well Fargo and that the bank had ‘breached its duty to the plaintiffs.’

Whilst the judge himself may have sided with the plaintiffs, the hearing was carried out appropriately and, thusly, the ruling stands. There will be no further action against Wells Fargo in relation to these losses.

The bank had said in its defence that its clients were operating at a three percent loss at a time when markets were down by 50 percent. “Wells Fargo was focused at all times on serving our clients’ interests and we worked very hard and responsibly to achieve the best results for all of the participants in the programme during very difficult economic conditions,” spokeswoman Peggy Gunn said in a statement on behalf of Wells Fargo. "We agree with the court’s findings in the rulings.”

For further reading on sec lending and its role in the world of shadow banking and short selling, please see:

Shadow banking and the regulatory capital question

Shadow banking – who, what and where and why? Part 1

Shadow banking – who, what and where and why? Part 2

Tags: SecuritiesSec lendingShadow Bankingshort sellingWells FargoBlue Cross