Wells Fargo has won approval for a $62.5 million settlement with large clients who claimed they lost money when the lender made investments on their behalf that were riskier than the clients expected.
On Monday, a federal judge in Minnesota approved the settlement, which was reached in March. Lead plaintiffs in the class-action case included large institutional investors, such as the employee retirement system for the city of Farmington Hills, Mich., and a pension fund for carpenters in Arizona.
The investors sued over losses stemming from Wells Fargo’s securities lending program. Under the program, the investors allowed Wells Fargo to lend investors’ securities to brokers, who borrowed them to support trading activities.
In exchange for borrowing the securities, brokers posted collateral, primarily in the form of cash. According to court documents, Wells Fargo had assured the institutional investors that it would invest the cash collateral in safe, conservative investments.
Instead, Wells Fargo put a substantial portion of the money in “extremely risky” securities, court documents say.
In a statement, Wells Fargo spokesman Ancel Martinez said the San Francisco-based bank is pleased to have reached the settlement. The bank was focused at all times on serving its clients’ interests and worked hard and responsibly to get the best results for all participants in the securities lending program, he said.
“This conservative approach resulted in plaintiffs’ Wells Fargo Securities Lending portfolios having minimal losses of 5 percent or less, compared to substantial losses experienced by other investors during the height of the financial crisis,” he said.