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Wachovia Equity Sec. Litig. v. Wachovia Corp.

United States District Court for the Southern District of New York

March 31, 2011, Decided; March 31, 2011, Filed

No 08 Civ. 6171 (RJS); No 09 Civ. 4473 (RJS); No 09 Civ. 5466 (RJS); No 09 Civ. 6351 (RJS)

Opinion

 [*341]  OPINION AND ORDER

Richard J. Sullivan, District Judge:

In these related actions, Plaintiffs bring a panoply of claims under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act") against Defendant Wachovia Corporation ("Wachovia") and a variety of related entities and individuals. All claims arise from the financial disintegration Wachovia experienced between its 2006 purchase of Golden West Financial Corporation and its 2008 merger with Wells Fargo & Company. Now before the Court are no fewer than seven motions to dismiss four complaints. For the reasons stated herein,  [*342]  those motions are granted in part and denied in part.

I. Background

A. Facts 1

The four complaints at issue span a grand total of 605 pages and 1,814 paragraphs. 2 Although the following recitation of facts provides only a bird's-eye view of the litigation, the Court will delve into the details of the pleadings as necessary to resolve particular legal challenges.

1. Overview

The relevant narrative begins in 2006, when Wachovia was one of the country's largest financial services providers, with a market capitalization of $112 billion. (Eq. Compl. ¶ 4.) As a bank holding company, Wachovia engaged in capital management, general banking, and investment banking (id. ¶ 61), and maintained retail banking offices in 21 states (id. ¶ 33).

On October 1, 2006, Wachovia completed its acquisition of Golden West Financial Corporation ("Golden West"), an Oakland-based mortgage lender, for more than $24 billion. 3 (Id. ¶¶ 5, 62.) Prior to the Golden West acquisition, a majority of the loans funded by Wachovia were traditional fixed-rate mortgages.  [**13] (Id. ¶ 80.) Golden West's main product, however, was a payment option adjustable rate mortgage ("Option ARM") known as the Pick-A-Payment ("Pick-A-Pay") mortgage, which allowed borrowers to choose from multiple payment options each month. (Id. ¶ 5.) Among those options was a "minimum" payment that, because it did not cover the monthly interest, actually increased the principal of the loan — a phenomenon known as "negative amortization." (Id. ¶ 6.)

Plaintiffs allege that following the Golden West acquisition, Wachovia began to focus on selling Pick-A-Pay loans rather than the traditional loans that had previously comprised the bulk of its residential mortgage business. (Id. ¶ 85.) Plaintiffs further allege that Wachovia weakened the credit quality of the Pick-A-Pay portfolio by lowering minimum credit scores (id. ¶ 97), failing to verify borrower income levels (id. ¶ 113), implementing quotas and sales incentives for loan officers (id. ¶ 125), and relying on inflated third-party appraisals of home value (id. ¶ 142). According to Plaintiffs, Wachovia adopted debased underwriting standards  [**14] and aggressive marketing strategies in order to maximize Pick-A-Pay loan volume "at all costs." (Id. ¶ 137; see id. ¶ 85.)

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753 F. Supp. 2d 326 *; 2011 U.S. Dist. LEXIS 36129 **; Fed. Sec. L. Rep. (CCH) P96,294

IN RE WACHOVIA EQUITY SECURITIES LITIGATION,STICHTING PENSIOENFONDS ABP, Plaintiff, versus WACHOVIA CORPORATION, ET AL., Defendants.FC HOLDINGS AB, ET AL., Plaintiffs, versus WELLS FARGO & COMPANY, ET AL., Defendants.IN RE WACHOVIA PREFERRED SECURITIES & BOND/NOTES LITIGATION,

Subsequent History: Later proceeding at In re Wachovia Preferred Secs. & Bond/Notes Litig., 2011 U.S. Dist. LEXIS 155622 (S.D.N.Y., Dec. 30, 2011)

Settled by, Costs and fees proceeding at, Objection overruled by In re Wachovia Equity Secs. Litig., 2012 U.S. Dist. LEXIS 97910 (S.D.N.Y., June 8, 2012)

Prior History: Lipetz v. Wachovia Corp., 2008 U.S. Dist. LEXIS 108279 (S.D.N.Y., Oct. 9, 2008)

CORE TERMS

scienter, subprime, underwriting, portfolio, misrepresentations, recklessness, misstatements, omission, mortgage, lending, ratios, registration, announced, misleading, acquisition, disclosure, borrower, investor, insider, stock, quotation, crisis, consolidated, certification, charge-off, purported, inflated, falsity, tolling, imputed

Civil Procedure, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Evidence, Inferences & Presumptions, Inferences, Pleadings, Complaints, Requirements for Complaint, Heightened Pleading Requirements, Fraud Claims, Securities Law, Postoffering & Secondary Distributions, Securities Exchange Act of 1934 Actions, Heightened Pleading Requirements, Implied Private Rights of Action, Elements of Proof, Causation, Materiality, General Overview, Scienter, Relevant Factors, Recklessness, Insider Trading, Motive & Opportunity, Predictions of Future Performance, Accounting Irregularities, Registration of Securities, False Registration Statements, Elements of Proof, Civil Liability Considerations, Disclosures, Civil Liability, Communications & Prospectuses, Definition of Seller, Initial Offerings of Securities, Securities Act Actions, Definitions, Constitutional Law, Case or Controversy, Standing, Elements, Standing, Particular Parties, Class Actions, Class Members, Justiciability, Injury in Fact, Governments, Legislation, Statute of Limitations, Time Limitations, Initial Offerings, Special Proceedings, Certification of Classes, Notice of Class Action, Content of Notice, Opt Out Provisions, Questions of Fact & Law, Pleading & Practice, Rule Application & Interpretation, Fraudulent Interstate Transactions, Defenses, Due Diligence, Group Published Information, Affirmative Defenses, Secondary Liability, Controlling Persons, Definition of Control, Insider Trading, Duty to Abstain & Disclose, Tippee Duties, Torts, Fraud & Misrepresentation, Actual Fraud, Judicial Notice, Legislative Facts, Laws of Foreign States, Negligent Misrepresentation, Federal & State Interrelationships, Federal Common Law, Preemption, Concerted Action, Civil Conspiracy