Wells Fargo 2008 Annual Report Download - page 132

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LE-NATURE’S, INC. Wachovia Bank, N.A. is the administrative
agent on a $285 million credit facility extended to Le-Nature’s,
Inc. in September 2006, of which approximately $270 million
was syndicated to other lenders by Wachovia Capital
Markets, LLC. Le-Nature’s was the subject of a Chapter 7
bankruptcy petition which was converted to a Chapter 11
bankruptcy petition in November 2006 in the U.S.
Bankruptcy Court for the Western District of Pennsylvania.
The filing was precipitated by an apparent fraud relating
to Le-Nature’s financial condition. On March 14, 2007, the
two Wachovia entities filed an action against several hedge
funds in the Superior Court for the State of North Carolina,
Mecklenburg County, alleging that the hedge fund defendants
had acquired a significant quantity of the outstanding
debt with full knowledge of Le-Nature’s fraud and with the
intention of pursuing alleged fraud and other tort claims
against the two Wachovia entities purportedly related to their
role in Le-Nature’s credit facility. A preliminary injunction
was entered by the Court that, among other things, prohibited
defendants from asserting any such claims in any other
forum. On September 18, 2007, these defendants filed an
action in the U.S. District Court for the Southern District of
New York against Wachovia Capital Markets, a third party
and two members of Le-Nature’s management asserting
claims arising under federal RICO laws. On March 13, 2008,
the North Carolina judge granted Defendants’ motion to stay
the North Carolina action and modified the injunction to
allow the Defendants to attempt to assert claims in the New
York action. The Wachovia entities have appealed. Wachovia
Capital Markets filed a motion to dismiss the New York
action which was granted on August 26, 2008. Plaintiffs have
appealed that ruling. Plaintiffs subsequently filed a case
asserting similar allegations in the New York State Supreme
Court for the County of Manhattan. On April 28, 2008, holders
of Le-Nature’s Senior Subordinated Notes, an offering which
was underwritten by Wachovia Capital Markets in June 2003,
sued alleging various fraud claims; this case is pending in the
U.S. District Court for the Western District of Pennsylvania.
On October 30, 2008, the liquidation trust in Le-Nature’s
bankruptcy filed suit against a number of individuals and
entities, including Wachovia Capital Markets, LLC, and
Wachovia Bank, N.A., in the U.S. District Court for the
Western District of Pennsylvania, asserting a variety
of claims on behalf of the estate.
MERGER RELATED LITIGATION On October 4, 2008, Citigroup,
Inc. (Citigroup) purported to commence an action in the
Supreme Court of the State of New York for the County of
Manhattan, captioned Citigroup, Inc. v. Wachovia Corp., et al.,
naming as defendants Wachovia Corporation (Wachovia),
Wells Fargo & Company (Wells Fargo), and the directors
of both companies. The complaint alleged that Wachovia
Corporation breached an exclusivity agreement with
Citigroup, which by its terms was to expire on October 6,
2008, by entering into negotiations and an eventual
acquisition agreement with Wells Fargo, and that Wells Fargo
and the individual defendants had tortiously interfered
with the same contract. In the complaint, Citigroup seeks
$20 billion in compensatory damages and $40 billion in
punitive damages. After significant procedural activity
over the week of October 4-9, 2008, including a voluntary
dismissal and re-filing of the action in amended form, the
case was removed on October 9, 2008, to the U.S. District
Court for the Southern District of New York. On October 10,
2008, Citigroup filed a motion to remand the case to the
New York state court, and filed a new proposed amended
complaint. The proposed amended complaint includes claims
for breach of contract, tortious interference with contract,
unjust enrichment, promissory estoppel, and quantum meruit.
In the proposed amended complaint, which the court has not
yet approved, Citigroup seeks $20 billion in compensatory
damages, $20 billion in restitutionary and unjust enrichment
damages, and $40 billion in punitive damages. On October
24, 2008, Wachovia Corporation and Wells Fargo filed a joint
response to the motion to remand.
On October 4, 2008, Wachovia Corporation filed a
complaint in the U.S. District Court for the Southern District
of New York, captioned Wachovia Corp. v. Citigroup, Inc.
The complaint seeks declaratory relief, stating that the
Wells Fargo merger agreement is valid, proper, and not
prohibited by the exclusivity agreement. On October 5, 2008,
Wachovia filed a motion for a preliminary injunction seeking
to prevent Citigroup from interfering with or impeding its
merger with Wells Fargo. On October 9, 2008, Citigroup
issued a press release stating that Citigroup would no longer
seek to enjoin the merger, but would continue to seek
compensatory and punitive damages against Wachovia
Corporation and Wells Fargo. On October 14, 2008,
Wells Fargo filed a related complaint in the U.S. District
Court for the Southern District of New York, captioned
Wells Fargo v. Citigroup, Inc. The complaint seeks declaratory
and injunctive relief, stating that the Wells Fargo merger
agreement is valid, proper, and not prohibited by the
exclusivity agreement. Citigroup has moved to dismiss
the complaint. The cases have been assigned to the same
judge for further proceedings.
MUNICIPAL DERIVATIVES BID PRACTICES INVESTIGATION
The Department of Justice (DOJ) and the SEC, beginning
in November 2006, have been requesting information from
a number of financial institutions, including Wachovia Bank,
N.A.’s municipal derivatives group, generally with regard
to competitive bid practices in the municipal derivative
markets. In connection with these inquiries, Wachovia Bank
has received subpoenas from both the DOJ and SEC as
well as requests from the OCC and several states seeking
documents and information. The DOJ and the SEC have
advised Wachovia Bank that they believe certain of its
employees engaged in improper conduct in conjunction
with certain competitively bid transactions and, in November
2007, the DOJ notified two Wachovia Bank employees, both
of whom have since been terminated, that they are regarded