A jury declined to punish Wells Fargo further on Thursday for harming four Minnesota nonprofits that lost money in one of the bank's investment programs.
A day after hitting the bank with $29.9 million in compensatory damages and finding that it engaged in fraud and breached its fiduciary duty, the St. Paul jury decided not to award the nonprofits any punitive damages.
The final verdict came less than two hours after Wells Fargo attorney Larry Hofmann told jurors their earlier finding "has been heard at Wells Fargo, at the highest level" but that "zero is the correct number here."
Mike Ciresi, the attorney for the nonprofits suing the bank, asked for at least $100 million in punitive damages. "The financial world is watching this courtroom," he told jurors. "This is an opportunity to send a message to prevent this conduct from happening again. If you award these damages, the word will go forth to San Francisco, New York, London and the financial capitals of the world."
"We sent our message yesterday," said juror Susan Lundy, referring to the $29.9 million award. "We just did not have enough evidence that this was an extraordinary situation" that warranted additional damages.
The case has been closely watched by attorneys across the country, including those representing other clients who lost money in similar investment programs, which generally have offered a safe way to earn extra income on stocks and other securities being held for long periods.
Banks like Wells Fargo lend client-owned securities, mostly stocks, to large brokers, which use the shares for short sales and other specialized trading. In exchange for the loaned shares, the brokers hand over cash collateral worth 102 percent of the value of the securities. The bank invested the cash, earning small gains that are shared with its clients.
The Minnesota nonprofits argued that Wells Fargo adopted a risky strategy that proved vulnerable during the credit crisis. As losses mounted in 2007 and 2008, Wells Fargo made it difficult for the clients to withdraw their funds without depositing additional sums to cover the losses.
The nonprofits are the Minneapolis Foundation, the Minnesota Medical Foundation, the Robins Kaplan Miller & Ciresi Foundation for Children and the Minnesota Workers' Compensation Reinsurance Association.
In a prepared statement, Wells Fargo said, "We believe the jury acted appropriately." The bank also took issue with the earlier award and said it "will consider our legal options."
The bank added that it stands behind its securities lending business and "the quality of investments made on behalf of our clients, all of which were highly rated at the time of purchase."
Hofmann argued that Wednesday's damage award was more than double the nonprofits' losses. "Enough is enough. You've more than fully compensated the clients for their losses," Hofmann said.
Nine jurors deliberated the punitive damage request. One juror was excused for personal reasons and didn't participate. Deliberations lasted about 90 minutes late in the afternoon.
"This decision was not about Wall Street fat cats against nonprofits," said juror Danielle Penneau. "Any investment has risk. We wanted to deal with the facts."
Penneau said the nonprofits' case did not fit the "clear and convincing evidence" instruction from Judge M. Michael Monahan, that Wells Fargo "disregarded the rights and safety" of its clients.
Ciresi on Tuesday asked jurors for $407 million in damages for a range of alleged wrongs, but the jury came back with a fraction of that, and rejected claims that Wells Fargo engaged in "conversion" of the nonprofits' assets, intentional fraud, breach of contract and negligent misrepresentation. The $407 million represented the plaintiffs' total investment in securities lending, not just their losses.
More than half of the total damages -- $16 million -- was awarded for violation of the Minnesota Consumer Fraud Act. The jury was asked, "Did Defendant Wells Fargo provide false information or use a deceptive practice in the course of selling the securities lending services?" Jurors answered yes on the verdict form.
Ciresi said the nonprofits were "very pleased" with the Wednesday finding. "We are disappointed with the verdict on punitive damages, but we accept it."
David Phelps • 612-673-7269