Wells Fargo 2008 Annual Report Download - page 130

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Legal Actions
Wells Fargo and certain of our subsidiaries are involved in
a number of judicial, regulatory and arbitration proceedings
concerning matters arising from the conduct of our business
activities. These proceedings include actions brought against
Wells Fargo and/or our subsidiaries with respect to corporate
related matters and transactions in which Wells Fargo and/or
our subsidiaries were involved. In addition, Wells Fargo and
our subsidiaries may be requested to provide information or
otherwise cooperate with governmental authorities in the
conduct of investigations of other persons or industry groups.
Although there can be no assurance as to the ultimate
outcome, Wells Fargo and/or our subsidiaries have generally
denied, or believe we have a meritorious defense and will
deny, liability in all significant litigation pending against us,
including the matters described below, and we intend to
defend vigorously each case, other than matters we describe
as having settled. Reserves are established for legal claims
when payments associated with the claims become probable
and the costs can be reasonably estimated. The actual costs
of resolving legal claims may be substantially higher or lower
than the amounts reserved for those claims.
ADELPHIA LITIGATION Wachovia Bank, N.A. and Wachovia
Capital Markets, LLC, are defendants in an adversary
proceeding previously pending in the United States
Bankruptcy Court for the Southern District of New York
related to the bankruptcy of Adelphia Communications
Corporation (Adelphia). The Official Committee of
Unsecured Creditors in Adelphia’s bankruptcy case filed
the claims; the current plaintiff is the Adelphia Recovery
Trust, which was substituted as the plaintiff pursuant to
Adelphia’s confirmed plan of reorganization. In February
2006, an order was entered moving the case to the United
States District Court for the Southern District of New York.
The complaint asserts claims against the defendants under
state law, bankruptcy law and the Bank Holding Company
Act and seeks equitable relief and an unspecified amount of
compensatory and punitive damages. On June 11, 2007, the
Bankruptcy Court granted in part and denied in part the
motions to dismiss filed by the two Wachovia entities and
other defendants. On January 17, 2008, the District Court
affirmed the decision of the Bankruptcy Court on the motion
to dismiss with the exception that it dismissed one additional
claim. On July 17, 2008, the District Court issued a ruling
dismissing all of the bankruptcy related claims. The remaining
claims essentially allege the banks should be liable to Adelphia
on theories of aiding and abetting a breach of fiduciary duty
and violation of the Bank Holding Company Act. The case
is now in discovery.
AUCTION RATE SECURITIES On August 15, 2008, Wachovia
Securities, LLC and Wachovia Capital Markets, LLC
(collectively the Wachovia Securities Affiliates) announced
they had reached settlements in principle with the Secretary
of State for the State of Missouri (as the lead state in the
North American Securities Administrators Association task
force investigating the marketing and sale of auction rate
securities), and with the New York State Attorney General’s
Office of their respective investigations of sales practice
and other issues related to the sales of auction rate securities
(ARS). Wachovia Securities also announced a settlement
in principle with the Securities and Exchange Commission
(SEC) of its similar investigation. Without admitting or deny-
ing liability, the agreements in principle require that the
Wachovia Securities Affiliates purchase certain ARS sold to
customers in accounts at the Wachovia Securities Affiliates,
reimburse investors who sold ARS purchased at the
Wachovia Securities Affiliates for less than par, provide liq-
uidity loans to customers at no net interest until the ARS are
repurchased, offer to participate in special arbitration proce-
dures with customers who claim consequential damages from
the lack of liquidity in ARS and refund refinancing fees to
certain municipal issuers who issued ARS and later refi-
nanced those securities through the Wachovia Securities
Affiliates. Without admitting or denying liability, the
Wachovia Securities Affiliates will also pay a total fine
of $50 million to the state regulatory agencies and agreed
to entry of consent orders by the two state regulators and
Wachovia Securities, LLC agreed to entry of an injunction
by the SEC. All three settlements in principle have been
finalized. The Wachovia Securities Affiliates began the buy
back of ARS in November 2008. The second and final phase
of the buy back will take place in June 2009.
Wells Fargo Investments, LLC (WFI), Wells Fargo
Brokerage Services, LLC, and Wells Fargo Institutional
Securities, LLC are engaged in discussions with regulators
concerning the sale of ARS. On November 20, 2008, the State
of Washington Department of Financial Institutions filed
a proceeding entitled In the Matter of determining whether
there has been a violation of the Securities Act of Washington
by: Wells Fargo Investments, LLC; Wells Fargo Brokerage
Services, LLC; and Wells Fargo Institutional Securities, LLC.
The action seeks a cease and desist order against violations
of the anti-fraud and suitability provisions of the Washington
Securities Act.
In addition, several purported civil class actions relating
to the sale of ARS are currently pending against various
Wells Fargo affiliated defendants.