[Update 1: Clarifies investors held bonds and preferred stock issued by Wachovia] Wells Fargo (WFC) agreed to pay $590 million to institutional investors and pensions funds to settle a class-action lawsuit over soured bonds and preferred-stock securities issued by Wachovia. Wells acquired Wachovia in October 2008 as the bank neared failure. The complaint was led by the Orange County Employees' Retirement System, the Louisiana Sheriff's Pension and Relief Fund and the Southeastern Pennsylvania Transportation Authority, which invested securities issued between July 31, 2006 and May 29, 2008. The investors alleged a portfolio of option adjustable-rate or "Pick-A-Pay" mortgages posed more risk to Wachovia than the bank disclosed. Wachovia's auditor KPMG also agreed to pay $37 million to settle the claims, bringing the total amount recovered by investors to $627 million. The class was represented by Bernstein Litowitz Berger & Grossman; Kessler Topaz Meltzer & Check; and Robbins Geller Rudman & Dowd. "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," the firms said in a join statement. The proposed settlement amount was reflected in Wells Fargo’s financial statements released Friday and will not have a material adverse effect on Wells Fargo’s consolidated financial position. "Wells Fargo agreed to this settlement in order to avoid the distraction, risk and expense of on-going litigation," a Wells spokesperson told HousingWire. "The settlement agreement does not constitute an admission of Wells Fargo of liability or any violation of law by Wachovia." Write to Jon Prior. Follow him on Twitter @JonAPrior.