Wachovia Securities Settlement
KM represented the New York City Pension Funds as lead plaintiff in two class actions filed against Wachovia Corporation (“Wachovia” or “the Company”) in the Southern District of New York.
Plaintiffs alleged that the Company and its executives misrepresented and failed to disclose Wachovia’s exposure to the subprime market, including the deficient underwriting standards of Golden West, a California-based mortgage lender that Wachovia had recently acquired. Prior to October 2007, CEO G. Kennedy “Ken” Thompson continually represented that Wachovia did not have material exposure to subprime-related assets. However, in January of 2008, Wachovia announced that the company had $6.694 billion in total subprime-related exposure. Then, on July 23, 2008, Wachovia announced a second quarter loss of $8.9 billion and cut its dividend by eighty-seven percent to five cents a share. It is estimated that Wachovia’s malfeasance caused billions of dollars of losses to investors.
Wachovia had made numerous statements assuring its shareholders that Golden West’s loans were low risk when in reality Wachovia was or should have been aware that the company had not been following underwriting and loan-origination practices. Wachovia, moreover, had been unable to confirm the credit-worthiness of the loan applicants on a significant portion of the Pick-A-Pay loan program, which was Golden West’s primary loan product. Wachovia also did little to verify the income of applicants applying for Pick-A-Pay loans. Moreover, Golden West was not properly accounting for Pick-A-Pay, or “negative amortization,” mortgages until after the property securing the mortgages was sold, which often was months after the company had learned of the default. Wachovia continued this procedure until the fourth quarter of 2007 when the company finally changed Golden West’s method of recording losses on past-due loans.
This case resulted in a settlement of $75 million for the class.
For further information, please visit the settlement website at http://www.wachoviaequitysettlement.com.