In Los Angeles Superior Court, a number of life insurance companies, mutual funds, retirement systems, and other investors are suing Wachovia Securities LLC for alleged fraud related to the sale of senior subordinated notes for beverage maker Le Nature’s Inc. The Pennsylvania-based company filed for bankruptcy in 2006.
Causes of action include fraud, negligent misrepresentation, aiding and abetting fraud, and fraudulent inducement. California Public Employees’ Retirement System (CalPERS) and the Nature Conservancy are among the scores of plaintiffs.
The plaintiffs are accusing Wachovia of knowing about the fraud and financial problems at Le Nature’s but keeping this information from investors so that the beverage company would keep paying the firm substantial fees. They say the lack of disclosure also helped Wachovia’s high-yield debt business.
Also named in the lawsuit are BDO Seidman and Ernst & Young. The companies had worked for Le Nature’s as auditors on different occasions. The plaintiffs say that the “clean” audit reports aided in the fraud. BDO Seidman denies the accusation and vows to vigorously defend itself against the charges.
Wachovia claims that it too was the victim of fraud by the drink company. One Le Nature’s accounting director that pled guilty to fraud acknowledged that the company had issued false information to Wachovia.
About 75 plaintiffs claim they suffered aggregate losses worth over $70 million. The plaintiffs are accusing Wachovia Securities of minimizing its own losses by purposely reducing its own exposure to Le Nature’s notes.
The complaint says that the drink company massively inflated its profits and revenue for years even though it was failing badly. Yet Wachovia market analysis gave Le Nature’s an “outperform” rating despite the fact that it was struggling to survive.
Related Web Resources:
Lawsuit alleges fraud in LeNature’s dealings, Pittsburgh-Tribune Review, May 1, 2008
Former Le-Nature’s employee pleads guilty in fraud scheme, Forbes.com, April 24, 2008