Wells Fargo Served a Major Legal Defeat Against Minnesota Nonprofits

May 7, 2012

U.S. District Court Judge Donovan Frank has shot down Wells Fargo’s request for dismissal of the civil trial following the 2010 verdict of fraud and breach of fiduciary duty by the bank. Blue Cross and Blue Shield of Minnesota, along with two other health care organizations, several pension funds, a college endowment fund, and a charitable foundation, sued Wells Fargo for misrepresenting the level of risk of their investment. The nonprofits stand to win $41 million at the civil trial in January 2013, not including punitive damages which could skyrocket into the hundreds of millions range.

The bank presented an investment program claiming it was safely conservative and could earn extra returns by lending the securities to brokers for short sale transactions. The lawsuit claims that the bank concealed the reality of the complex, long/short, structured investment which tanked along with the rest of the market in 2008.

The bank, now owned by Citigroup Inc., defends its investment vehicle, saying that the program was in accordance with investment guidelines and the investments were suitable at the time of purchase.

A word of caution: Investment brokers are ultimately selling a product. Unless they have certification as a financial planner (CFP), they owe professional due care, but not fiduciary responsibility, meaning, protecting your financial interest isn’t the top item on their list. Many brokers are also CFPs and it makes good financial sense to make sure your broker is one.