On Thursday, a New York federal judge said that Wells Fargo [1] must face litigation seeking to hold the bank accountable for billions of dollars in claimed investor losses as trustee of residential mortgage-backed securities, saying the investor funds more than met the pleading the standard, according to Law360 [2].
The plaintiffs, including BlackRock Inc [3], Pacific Investment Management Co [4], Prudential Financial Inc [5], and TIAA-CREF [6], can pursue breach of contract and conflict of interest claims related to 53 trusts, said U.S. District Judge Katherine Polk Failla.
The investors will be able to pursue claims alleging breaches of fiduciary duty and due care. Fallia’s 80-page decision covers five lawsuits, and as a trustee of residential mortgage-backed securities, the bank failed to meet its contractual duty, and its risky mortgage securities contributed to heavy losses during the financial crisis in 2008.
The funds allege that Wells Fargo caused investors to lose billions, stemming from a total of 53 residential mortgage-backed security trusts at issues. Judge Fallia disagreed with the bank’s movement to dismiss the breach of contract claims, saying the funds pled only generalized allegations.
“Here, plaintiffs have more than met this [pleading requirement] standard,” wrote Fallia. “Plaintiffs have alleged defendant’s knowledge of [representations and warranties] breaches on the basis of defendant’s internal documents.”
Investors have accused Wells Fargo of taking little to no action to require lenders to buy back or fix defaulted or poorly underwritten loans that backed their securities. “It is plaintiffs’ contention that such allegations go far beyond many other RMBS trustee complaints, which themselves have been found sufficient to state a claim,” Fallia wrote. “The court agrees.”
Additionally, The National Credit Union Administration [7] could pursue claims against Wells Fargo’s failure as the trustee on 27 residential mortgage back securities, which contributed to the collapse of five credit unions, which had purchased $2.4 billion of the securities.