Pension funds sue Wells Fargo, alleging executives breached fiduciary duties
Two pension funds filed a shareholder derivative lawsuit against Wells Fargo (WFC) this week, claiming the bank and its leaders failed to properly address mortgage documentation issues, leaving Wells exposed to $15 billion in potential liabilities. A spokesman for San Francisco-based Wells Fargo declined comment on the suit, which was filed in the U.S. Northern District of California by the Oakland County Employees Retirement System and the Laborers' District Council and Contractors Pension Fund of Ohio. The pension funds claim the bank's leadership failed to promptly address robo-signing and documentation issues tied to the mortgage securitization process, resulting in a situation where "liabilities appear to be hanging like the sword of Damocles over Wells Fargo and its shareholders." The plaintiffs specifically named Wells Fargo CEO and Chairman John Stumpf a defendant, along with other board members and officers. Investors in the pension funds claim Wells Fargo's leadership ignored early reports that robo-signing and issues with the Mortgage Electronic Registration System during the securitization process tainted some foreclosures and property titles. The plaintiffs, who own a combined 169,000 shares of the banking giant's 5.3 billion shares outstanding, said in court papers the leadership continued "to prolong the illusion of Wells Fargo's success, concealing the adverse facts concerning Wells Fargo's actual financial condition, its lack of ownership over real estate debt that had been securitized through the MERS system, and the company's lack of clean title to real property, in judicial foreclosure states." "This wrongful conduct exposed the company to billions of dollars of liability to investors in the secondary securitized debt markets, and hundreds of millions of dollars in litigation related expense and liability stemming from wrongful foreclosure and related litigation arising in judicial foreclosure jurisdictions," the pension funds allege. As part of the derivative suit, the two groups are suing Wells Fargo's directors and executives, claiming they breached their financial duties. MERS, which is a subsidiary of Merscorp Inc., is accused in the complaint of aiding and abetting the bank by assisting and ignoring in some of the material breaches of fiduciary duties. Write to: Kerri Panchuk.