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Class Action Suit Costs Wachovia $590 million

by Melanie Waddell

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In what’s being hailed as among the largest securities class action recoveries, a U.S. district court ordered Wachovia Corp. to pay $590 million for losses incurred through the purchase of the firm’s bonds and securities.

The U.S. District Court for the Southern District of New York ordered the payment of the money to the Orange County (Calif.) Employees’ Retirement System, the Louisiana Sheriffs’ Pension and Relief Fund, and the Southeastern Pennsylvania Transportation Authority for losses on purchases made between July 31, 2006, and May 29, 2008.

KPMG, Wachovia’s auditor, was ordered to pay an additional $37 million, bringing the total amount in the case to $627 million—a settlement amount that the plaintiffs’ lawyers in the case say is the largest ever in a class action case asserting only claims under the Securities Act of 1933.

Both settlements must be reviewed and approved by Judge Richard J. Sullivan of the district court after formal notice is provided to plaintiffs in the class action suit.

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According to the plaintiffs’ attorneys, the claims in the case were largely based on allegations that “the Wachovia offering materials at issue misrepresented and/or omitted to disclose material facts concerning the nature and quality of Wachovia’s multi-billion dollar option-adjustable rate mortgage (ARM) “Pick-A-Pay” mortgage loan portfolio, and that Wachovia’s publicly disclosed loan loss reserves were materially inadequate at all relevant times, in violation of Generally Accepted Accounting Principles (GAAP).”

The complaint alleged that the undisclosed problems in the “Pick-A-Pay” mortgage loan portfolio brought Wachovia to the brink of insolvency by September 2008.
 
The plaintiffs’ lawyers in the case issued a statement in the release announcing the settlement in which they said: “We are very pleased to announce such a significant recovery in this matter on behalf of the bond and preferred security purchasers we represent as members of the class. We believe that these settlements reflect an outstanding result for bond and preferred security purchasers who were damaged as a result of false and misleading offering materials issued in connection with Wachovia’s public offerings.” 

Plaintiffs were represented by the law firms of Bernstein Litowitz Berger & Grossmann, Kessler Topaz Meltzer & Check, and Robbins Geller Rudman & Dowd as co-lead counsel.