A jury is deliberating whether Wells Fargo has committed fraud in a claim filed by Blue Cross and Blue Shield in 2011.
In September 2011, Blue Cross and Blue Shield of Minnesota, which offer health plans for individuals and businesses, and other institutional investors, launched a suit against Wells Fargo in Minnesota federal court, accusing the financial services company of grossly mismanaging investments in its securities lending programme.
A spokesperson for Wells Fargo said at the time: “Wells Fargo categorically denies the allegations made in this lawsuit and will vigorously defend against them."
"The investments made by Wells Fargo on behalf of clients in the securities lending programme were in accordance with investment guidelines, and were highly rated and suitable at the time of purchase. As with all investments, the investors bear the risk of their investment losses. Wells Fargo continues to act with clients’ best interests in mind and strives to provide exceptional customer service at all times.”
Blue Cross Blue Shield’s claim, meanwhile, stated that: securities lending was offered as a conservative option for investors; Wells Fargo aggressively marketed its lending programme; and the bank also represented that the collateral would be safely invested in high-grade money market instruments.
The bank created a business trust for securities lending that named itself the sole trustee, which failed to comply with either Maryland or Minnesota law, it said.
It also said that Wells Fargo knew in advance that the bank should avoid risky subprime investments and SIVs, quoting Richard Kovacevich, chairman of Wells Fargo & Company until 2009, as saying: “In fact, I was embarrassed at the time, but not so much now, that I didn't even know what an SIV was. I thought it was some new automobile."
"When I finally figured it out, I thought, 'Why would people do this?' What advantage, what purpose does an SIV serve, other than putting something off balance sheet and keeping it from your investors and taking enormous risks?”
Despite these statements and actual knowledge by Wells Fargo's highest officers of the risks, Wells Fargo heavily invested in these types of investments in the programme, the claim said.
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