Wells Fargo 2009 Annual Report Download - page 145


as having or being settled. Reserves are established for legal
claims when it becomes probable that a loss will be incurred
at the date of the financial statements and the amount of loss
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. After rulings on various motions to
dismiss, 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 scheduled to go
to trial on September 13, 2010.
AUCTION RATE SECURITIES 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 sought a cease and desist order against violations
of the anti-fraud and suitability provisions of the Washington
Securities Act. On April 23, 2009, the Attorney General of
the State of California filed a complaint in the Superior Court
of the State of California for the County of San Francisco
alleging that certain Wells Fargo affiliates improperly sold
ARS to customers. The Attorney General sought an injunction
against those affiliates, enjoining them from violating certain
California statutes, civil penalties, disgorgement of profits,
restitution and damages. On November 18, 2009, Wells Fargo
announced separate settlement agreements with the State of
California Attorney General’s office and the North American
Securities Administrators Association. The agreements
resolve the above-referenced enforcement actions and all
active regulatory investigations concerning Wells Fargo’s
participation in the ARS market. In conjunction with the
settlement agreements, Wells Fargo announced it would
buy back ARS from eligible investors.
In addition, the purported civil class actions relating
to the sale of ARS are no longer pending against various
Wells Fargo affiliated defendants. On January 26, 2010, two
of the pending civil class actions were dismissed in their
entirety. The remaining cases have been settled or
conditionally dismissed.
CASA DE CAMBIO INVESTIGATION An investigation is being
conducted by the U.S. Attorney’s Office for the Southern
District of Florida, in conjunction with certain regulators,
into, among other matters, Wachovia Bank, N.A.’s prior corre-
spondent banking relationship with certain non-domestic
exchange houses and Wachovia Bank, N.A.’s compliance with
Bank Secrecy Act and anti-money laundering requirements.
Wachovia Bank, N.A. has cooperated fully with the regulators
and with the U.S. Attorney’s Office’s investigation, and is
engaged in discussions to resolve this matter by paying penal-
ties and entering into agreements concerning future conduct.
DATA TREASURY LITIGATION Wells Fargo & Company,
Wells Fargo Bank, N.A., Wachovia Bank, N.A. and Wachovia
Corporation are among over 55 defendants originally named
in two actions asserting patent infringement claims filed by
Data Treasury Corporation in the U.S. District Court for the
Eastern District of Texas. Data Treasury seeks a declaration
that its patents are valid and have been infringed, and seeks
damages and permanent injunctive relief. A trial on two of the
patents is scheduled to be held on August 1, 2010. A second
trial on the remaining patents has not been scheduled.
ELAVON LITIGATION On January 16, 2009, Elavon, Inc.
(Elavon), a provider of merchant processing services,
filed a complaint in the U.S. District Court for the Northern
District of Georgia against Wachovia Corporation, Wachovia
Bank, N.A., Wells Fargo & Company, and Wells Fargo Bank,
N.A. The complaint seeks equitable relief, including specific
performance, and damages for Wachovia Bank’s allegedly
wrongful termination of its merchant referral contract
with Elavon. The complaint also sought damages, including
punitive damages, against the Wells Fargo entities for
tortious interference with contractual relations; this claim
was dismissed by the court on October 13, 2009. On
September 29, 2009, Elavon filed an amended complaint
adding a party not affiliated with Wells Fargo to the
litigation. The case is currently in discovery.
ERISA LITIGATION Seven purported class actions have been
filed against Wachovia Corporation (Wachovia), its board of
directors and certain senior officers in the U.S. District Court
for the Southern District of New York on behalf of employees
of Wachovia and its affiliates who held shares of Wachovia
common stock in their Wachovia Savings Plan accounts. On
June 18, 2009, the U.S. District Court for the Southern District
of New York entered a Memorandum and Order transferring
these consolidated cases to the U.S. District Court for the
Western District of North Carolina. The plaintiffs allege
breach of fiduciary duty under the Employee Retirement
Income Security Act (ERISA) claiming, among other things,
that the defendants should not have permitted Wachovia
common stock to remain an investment option in the
Wachovia Savings Plan because alleged misleading disclosures
relating to the Golden West mortgage portfolio, exposure
to CDOs and other problem loans, and other alleged
misstatements made its stock a risky and imprudent
investment for employee retirement accounts. Wachovia
has filed a motion to dismiss which is currently pending.