Wells Fargo & Co. has reached a $590 million agreement to settle civil claims with disgruntled investors in Wachovia-issued securities that were sold between 2006 and 2008, according to a securities filing Friday.
The settlement — believed to be one of the largest of its kind — has yet to be filed in court and needs a judge's approval. If okayed it would end a class-action case in federal court in Manhattan, where investors alleged Wachovia made "untrue statements of material fact" and omitted other facts while selling the bonds.
As part of the same case, Wachovia's auditor, KPMG, agreed to pay $37 million to settle civil claims.
Back in 2006 Wachovia became a major player in the nonprime market when it bought World Savings of Oakland, a large originator of payment option ARMs.
Wells bought Wachovia during the financial crisis of 2008-2009. Without the purchase, Wachovia would have failed.
The investments, a series of bonds and preferred securities, were sold between July 31, 2006, and May 29, 2008. During that period, Wachovia sold more than $35 billion in securities, according to the lawsuit.
"Wachovia's offering materials materially and repeatedly misstated and failed to disclose the true nature and quality of Wachovia's mortgage loan portfolio, and materially misled investors as to the company's exposure to tens of billions of dollars of losses on mortgage-related assets," the complaint had alleged.
Wells Fargo said it had already accrued for the settlement in its legal reserves, and that it would not have any material impact on its earnings.
"We settled this in order to avoid the distraction, risk and expense of ongoing litigation," said a Wells Fargo spokeswoman. "The settlement does not constitute an admission by Wells Fargo of any liability or violation of law by Wachovia."
