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A federal judge on Thursday said Wells Fargo must face litigation seeking to hold it responsible for billions of dollars of claimed investor losses stemming from its alleged failures as a trustee overseeing risky residential mortgage-backed securities.
U.S. District Judge Katherine Polk Failla in Manhattan said the plaintiffs, including a few dozen funds from BlackRock, Pacific Investment Management Co., Prudential Financial, and TIAA-CREF, may pursue breach of contract and conflict of interest claims related to 53 trusts.
Failla also said the investors may pursue some claims alleging breaches of fiduciary duty and due care, but she dismissed claims alleging general negligence and the violation of a New York law governing mortgage trusts. Failla also denied Wells Fargo's bid to dismiss claims by Germany's Commerzbank.
Ancel Martinez, a Wells Fargo spokesman, declined to comment. A lawyer for many of the plaintiffs did not immediately respond to requests for comment.
Failla's 80-page decision covers five lawsuits, which comprise one of the largest remaining pieces of U.S. litigation seeking to hold banks liable for risky mortgage securities that were a major cause of the 2008 global financial crisis.
Much of this litigation targeted lenders, but some targeted trustees that oversaw the securities' performance.
Investors accused Wells Fargo of having taken "virtually no action" to require lenders to buy back or fix defaulted or poorly underwritten loans that backed their securities, despite knowing of shortfalls.
They said the San Francisco-based bank's resistance stemmed from concern that acting would have exposed its own "misconduct" in other residential mortgage-backed securities trusts, and jeopardized its business dealings with lenders and servicers, court papers show.
Failla said the plaintiffs "more than met" the legal standard for letting the breach of contract claims proceed, having pointed to internal Wells Fargo documents to suggest the bank knew about many loan defects but did nothing.
"It is plaintiffs' contention that such allegations go far beyond many other RMBS trustee complaints, which themselves have been found sufficient to state a claim," Failla wrote, without ruling on the merits. "The court agrees."
Failla also said the National Credit Union Administration may pursue various claims against Wells Fargo on behalf of five failed credit unions.
The NCUA has already recouped roughly $4.3 billion in litigation against many banks over securities that the credit unions bought. A spokesman could not be reached for comment.
The cases in the U.S. District Court, Southern District of New York are: BlackRock Allocation Target Shares Series S Portfolio et al v. Wells Fargo Bank NA et al, No. 14-09371; Royal Park Investments SA/NV et al v. Wells Fargo Bank NA et al, No. 14-09764; National Credit Union Administration Board v Wells Fargo Bank NA, No. 14-10067; Phoenix Light SF Ltd et al v. Wells Fargo Bank NA, No. 14-10102; and Commerzbank AG v. Wells Fargo Bank NA, No. 15-10033.