TEXT OF STORY
Stacey Vanek-Smith: It's been a stellar few months for investment banks. If you hire a bank to help invest your money and both of you get in over your heads, who's on the hook when things go bad? A trial in Minnesota is testing whether one of the country's biggest banks owes its clients for getting them into some risky investments. Marketplace's Jeff Horwich reports.
Jeff Horwich: Big Bank knows its investments are risky, but doesn't come clean -- so far it's playing out like a Midwestern "Goldman Sachs," complete with embarrassing e-mails. Mike Ciresi is the attorney for three foundations and a state workers comp fund suing Wells Fargo. He showed the jury internal Wells Fargo documents debating whether to tell clients about their sour investments. One refers to investors as "hostages."
Mike Ciresi: Their CEO and chairman testified that the investments that they made into certain areas were ones that took enormous risk. They've also described them as "goofy" investments.
Ciresi says the foundations signed on for investments that were low-risk and easy to cash out. Instead they got subprime mortgages, commercial paper, and Lehman Brothers. Wells Fargo says these foundations are sophisticated institutional investors -- they saw the fine print, signed on the dotted line, and knew there was risk.
Terry Fruth is a securities lawyer in Minneapolis. He says the foundations weren't the only ones feeling clueless.
Terry Fruth: The delicious irony is that the biggest institution in this game, Wells Fargo, didn't understand what they were doing.
In fact, Wells Fargo says most of the money lost in this particular investment pool was its own. Fruth says the jury in St. Paul has to answer one of the toughest questions from the financial crisis -- when everyone involved is out of their depth:
Fruth: Who should be responsible under the law in knowing what they're doing?
If the answer is "the bank," Fruth is ready for the lawsuit floodgates to open. He represents another nonprofit lining up to sue Wells Fargo.
In St. Paul, I'm Jeff Horwich for Marketplace.
“I think the best compliment I can give is not to say how much your programs have taught me (a ton), but how much Marketplace has motivated me to go out and teach myself.” – Michael in Arlington, VABEFORE YOU GO