The Boilermaker-Blacksmith National Pension Trust is suing a number of investment banks, credit rating agencies, and underwriters, including Wells Fargo, WFASC, Morgan Stanley & Co., Credit Suisse Securities (USA) LLC, Barclays Capital Inc., Bear Stearns & Co., Countrywide Securities Corp., Deutsche Bank Securities Inc., JPMorgan Chase Inc., Bank of America Corp., Citigroup Global Markets Inc., McGraw-Hill Cos., Moody’s Investor Services Inc., and Fitch Ratings Inc., over allegations that they made false statements in the prospectus and registration statement for certificates that were collateralized by Wells Fargo Bank, NA. The lawsuit, filed on behalf of thousands of investors that bought the certificates from Wells Fargo Asset Securities Corp., accuses the defendants of violating the 1933 Securities Act by engaging in these alleged actions.
According to the securities fraud lawsuit, the defendants concealed from investors that Wells Fargo revised its underwriting practices in 2005 and became involved in high risk subprime mortgage lending. The complaint contends that WFASC and a number of defendants submitted to the Securities and Exchange Commision prospectus and registration statements representing that the mortgages were backed by certificates that were subject to specific underwriting guidelines for evaluating a borrower’s creditworthiness. The plaintiffs contend that these prospectuses and registration statements were false because they neglected to reveal that the Wells Fargo-originated certificates were not in accordance with the credit, underwriting, and appraisal standards that Wells Fargo, per the companies, had supposedly used to approve mortgages.
The lawsuit also claims that because Wells Fargo decided to enter the subprime mortgage mortgage market in 2005, the investment bank had to take significant write-downs in 2008 because of its massive exposure to the subprime market and the WFASC certificates that these mortgages backed dropped significantly in value. The Boiler-Blaksmith fund reports that it lost about $5 million, which is more than half of what it invested.
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