Wells Fargo settles “Pick-a-Pay” loan class action for $627 million

August 24, 2011 by

In the latest legal fallout from the mortgage implosion, Wells Fargo & Co. has agreed to pay $590 million and accounting firm KPMG has agreed to pay $37 million to settle class action lawsuits brought by Wachovia bond holders and preferred shareholders centering on controversial “pick-a-pay” loans issued by Oakland’s World Savings and later Wachovia Corp.  Wells Fargo purchased Wachovia Corp.

Wells Fargo and KPMG, which had audited the books of Charlotte, North Carolina-based Wachovia, said they had agreed to the settlement terms to avoid the expense and distractions of the litigation.

Several lawsuits consolidated before U.S. District Court Judge Richard J. Sullivan in New York alleged that Wachovia had been negligent in failing to disclose the risks embedded in the portfolio of pick-a-pay loans, which gave borrowers the option of paying so little that the amount they owed went up instead of down.

Judge Sullivan, in March, tossed out many claims against Wachovia and its former managers, including dismissing lawsuits filed on behalf of Wachovia’s common shareholders.  Judge Sullivan rejected claims that the managers, including former Wachovia Chief Executive Ken Thompson, had intentionally defrauded or mislead investors.

However, he let securities lawsuits filed on behalf of the holders of Wachovia bonds and preferred shares proceed on grounds of negligence.

Steve Larson
An experienced trial lawyer who handles both hourly and contingent fee cases, Steve has expertise in class actions, consumer cases, antitrust litigation, securities litigation, corporate disputes, intellectual property disputes, unfair competition claims, employment matters, and disputes involving family wealth. Steve regularly represents individuals and businesses in federal and state court and has obtained class-wide recovery in multiple class actions. A veteran practitioner, Steve's clients value his creative approach to resolving complex litigation matters.

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