In what is as far as I know the first settlement of a securities class action lawsuit brought by mortgage-backed securities investors as part of the subprime and credit crisis-related litigation wave, the parties to the Wells Fargo Mortgage-Backed Certificates securities litigation have agreed to settle the case for $125 million. The lead plaintiffs’ July 6, 2011 motion for preliminary approval can be found here, and the stipulation of settlement can be found here. A July 7, 2011 Bloomberg article describing the settlement can be found here.


Bank of America last week announced an $8.5 billion settlement with Countrywide mortgage-backed securities investors, but as discussed here, that settlement involved only the investors’ repurchase claims under the documents governing the securities and expressly did not  resolve investors’ separate claims with respect to the Countrywide mortgage-backed securities under the federal securities laws.


As detailed here, purchasers of the mortgage pass-through certificates filed their initial lawsuit in March 2009, asserting claims under Sections 11, 12 and 15 of the Securities Act of 1933 and alleging that the Certificates’ offering documents contained misrepresentations and omissions. The plaintiffs alleged that the documents misstated Wells Fargo’s underwriting processes and loan standards; falsely stated the appraisal value of the underlying mortgaged properties; and misstated the investment quality of the securities, which had been assigned the highest ratings regardless of the lower quality of the underlying mortgages.


In an April 22, 2010 order (here), Northern District of California Judge Susan Illston granted in part and denied in part the defendants’ motions to dismiss. She dismissed, for lack of standing, plaintiffs’ claims based relating to 37 out of the 54 referenced offerings in which the named plaintiffs had not purchased securities. She denied the motion to dismiss as to the 17 remaining offerings at issue, holding that the plaintiffs, in reliance on confidential witness testimony, had adequately alleged misrepresentations in connection with the defendants’ underwriting practices, improper appraisal practices, and the process by which the securities obtained their investment ratings. Further discussion of the dismissal motion ruling can be found here.


In an October 5, 2010 order (here), Northern District of California Judge Lucy Koh (to whom the case was reassigned) granted the defendants’ motion to dismiss the plaintiffs’ amended Section 12(a)(2) allegations as well as certain other factual allegations. In a separate order (here), Judge Koh granted the motion to dismiss of certain underwriter defendants. The same order also dismissed as untimely the claims pursued by additional plaintiffs as to a total of eleven additional offerings.


The final settlement relates to a total of 28 different offerings. The settlement has been reached on behalf of not only Wells Fargo itself and related Wells Fargo entities, but also nine offering underwriters and four individual defendants. The settlement stipulation does not indicate whether or to what extent any of the other defendants are contributing toward the settlement amount. Indeed paragraph 6 of the settlement stipulation expressly states that “other than the obligation of Wells Fargo to cause to be paid [the settlement amount] to the Escrow Agent, no Defendant shall have any obligation to make any payment into the Escrow Account.”


There is nothing in the settlement stipulation to suggest, one way or the other, whether or not there is  any to insurance payment or reimbursement for any portion of the settlement amounts. The operative release provisions in the stipulation recites that the release parties shall include the defendants’ “related parties” which are defined to include “insurers and reinsurers,” but there is otherwise no reference in the stipulation to any insurance payment.


The Wells Fargo settlement comes close on the heels of the $208.5 million settlement in the WaMu securities suit (about which refer here). But there still have been only 24 settlements out of the over 230 credit crisis-related securities lawsuits filed between 2007 and now. I have long thought that the apparent settlement logjam in the credit crisis securities litigation would eventually break and that the settlements would then quickly start to accumulate. With these two recent substantial settlements, it may be the settlements will now start to quickly pile up.


As I mentioned at the outset, this settlement is as far as I know the first settlement of a subprime meltdown or credit crisis-related securities class action lawsuit brought on behalf of investors in mortgage backed securities. There were squadrons of other securities lawsuits filed on behalf of various mortgage backed securities investors, many of which have survived dismissal motions in whole or in part. It may be that we will start to see settlements in the other various mortgage backed securities cases shortly.


I have in any event added the $125 million Wells Fargo settlement to my running list of subprime meltdown and credit crisis-related lawsuit resolutions, which can be accessed here.


Special thanks to a loyal reader for alerting me to this settlement.


Quick Hits: A number of interesting law firm memos have come across our desk in recent days here at The D&O Diary. Here’s a quick list.


First, the Lowenstein law firm has issued an interesting July 1, 2011 memorandum discussing the perennial issues involving D&O insurance in the bankruptcy context. The memo, entitled “Navigating the Intersection of Bankruptcy and Insurance,” can be found here.


Second, I have had several posts on this site discussing the U.K Bribery Act (most recently here), which became effective July 1, 2011. With respect to possible D&O insurance issues arising in connection with the Act, the Pillsbury law firm published a July 5, 2011 memo entitled “U.K. Bribery Act: Consider Your Directors and Officers Insurance?” (here).


Third, readers may recall my recent post discussing the phenomenon of shareholder litigation arising after a negative “say on pay” vote. The Drinker Biddle law firm has a June 2011 memo about these lawsuits, entitled “Lawsuits in the Wake of Say on Pay” (here). The Bingham McCutchen law firm also has a July 7,2011 memo on the same topic, entitled "’Say on Pay’: Shareholder ‘No’ Votes Now Leading to Derivative Actions Challenging Executive Compensation," (here).