The lawyer for three Minnesota charities and an insurance fund asked a jury Tuesday to find that Wells Fargo engaged in fraud, misrepresentation and other wrong in its handling of a securities-lending program and to award the nonprofits more than $400 million in damages.
Attorney Michael Ciresi, whose law firm's foundation once was the bank's client, cited dozens of Wells Fargo's internal documents in his closing argument, saying that bank officials showed "arrogance and utter contempt for their customers" and should be held accountable.
Wells Fargo attorney Robert Weinstine argued in Ramsey County District Court that the bank shouldn't have to pay any damages. Though the nonprofits are down $14.1 million, it was a regrettable consequence of the credit crisis of 2007-08, he said.
"They are seeking a windfall," Weinstine said of the damage claim. He called it "a symptom of the runaway lawsuit culture."
Judge M. Michael Monahan sent the 10-member jury home at the end of the day. Jurors will begin deliberating Wednesday morning, and will face a mound of evidence. The six-week civil trial has produced eight boxes of exhibits, and the verdict form requires jurors to answer 26 questions.
The case centers on a bank-run program that allowed the four nonprofit groups to earn some extra income from stocks they hold as long-term investments. 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.
Under the program, brokers borrowed the nonprofits' securities, mostly stocks, to conduct various specialized transactions. The brokers put up cash equity for the borrowed securities, and Wells Fargo invested that money, sharing the earnings with the nonprofits.
Ciresi displayed internal bank documents to jurors in which officials declared "safety of principal and liquidity" the key investment goals. Yet he told jurors that long before the 2008 financial meltdown, top Wells Fargo officials understood that the securities-lending investments, including structured investment vehicles tied to the housing market, presented a risk.
He argued that Wells Fargo was grossly negligent in how it managed the cash collateral, which his clients believed would be put in safe, easily sold investments. Later, the bank made the "patently false" assertion that it didn't have fiduciary duty for the nonprofit's money, and offered only money-losing options to get their stocks back, he said.
Jurors must weigh whether Wells Fargo breached its fiduciary duty as well as the contracts it signed with the nonprofits. Other questions for the jury are whether the bank engaged in intentional and consumer fraud and negligent misrepresentation.
If jurors find the bank engaged in conversion -- the allegation that the nonprofits' assets were held hostage by the bank -- it opens the door for far higher damages than the actual losses. Depending on the verdict, jurors also could be asked to consider additional, punitive damages in a second stage of the deliberations.
Weinstine argued that the bank had a long track record of success with the investment strategy, and that "the only thing that changed is the recession." Though the program lost money for the nonprofits, it amounted to 3 to 4 percent of the assets, far less than the 56 percent drop in the Dow Jones industrial average, he added.
Three of the investments held by the program defaulted, but more than 100 others didn't, he added. Nonprofits such as the insurance fund, which had financial experts on its staff, knew the program had risks, he said. The nonprofits -- not the bank -- were responsible for losses, and admitted it during the trial, he added.
When the nonprofits had the chance to get out of the fund in 2008 -- and two of them did -- "they knew they could exit, they just didn't like the terms," Weinstine said.
"This is a case about investment losses," he told jurors. "It is not a case about fraud."
David Shaffer • 612-673-7090