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W. Fargo loses fraud case, to pay $30m
The American flag flies above the flag for Wells Fargo banks in Woodbury, Minn.
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Kai Ryssdal: If your investments went bad during the recession, you're out of luck, right? You can't really blame your bank or your investment adviser for what happened. Or can you? A jury in Minnesota says yes, indeed you can. They ruled today that Wells Fargo owes four nonprofits who trusted the bank to look after their money $30 million. Jurors said the bank stopped looking after its clients' best interests and started looking after its own.
Jeff Horwich reports.
Jeff Horwich: Susan Lundy sat on the jury, and listened to Wells Fargo's argument: The investments seemed safe at the time. They did their best to cope with a huge economic meltdown. But in testimony, she says bank executives seemed confused, and out of touch with the complex investments they had gotten into.
SUSAN LUNDY: They sat up there and basically said things like, "I didn't know we had a securities lending department, I didn't know what an SIV was, I had to look it up on Wikipedia." So I know it's a huge corporation, but that didn't settle well with me.
Then came glimpses into the bank's internal panic, as the market tanked: E-mails that refer to the clients as "hostages" -- that openly worry whether to tell them how bad things were.
LUNDY: When things fell apart, there were bad decisions that were made. And I think by sticking by those decisions, they did not adhere to their fiduciary duty.
"Fiduciary duty" -- basically a legal term for putting your clients' interests first. The jury said Wells Fargo fell short, not least by letting some big investors get their money out while keeping small ones in the dark.
In a statement, Wells Fargo says it's pleased with the small size of the damages -- plaintiffs wanted much more. But the verdict encourages lawyers like Terry Fruth, whose clients lost money in the same investment.
TERRY FRUTH: Wells Fargo finds itself in the position of the Philip Morris tobacco company -- that is, it's been decided that this product is not safe and should be avoided by certain people.
Fruth says the jury did not find Wells Fargo was willfully trying to harm its clients -- it just got in over its head. But now attorneys like Fruth know: You can call that negligence, and it's good enough for $30 million.
I'm Jeff Horwich for Marketplace.
W-F was my favorite bank, but after seeing that they laundered $420 Billion in Mexican cartel drug money, turned a blind eye to their duty to report transactions identified by the FBI as 'red flags' indicative of money laundering, and made sure their compliance officer was "well-paid to not know, and not report, the banks transgressions", I will have to revise my opinion. W-F earned $130+ Million in these transactions, but only paid a $10 Million fine. I am sure that it is business as usual today. I can understand W-F acting this way, but why didn't the Justice Dept go for the entire profit ($130M), PLUS the $10M fine? That would have sent the right message, that you will not profit from illegal actions: instead the message is that you are going to have to pay us off if you are going to do something corrupt.
