Cases & Deals

Wells Fargo obtains summary judgment win in CDO litigation

Client(s) Wells Fargo Securities LLC

Jones Day represented Wells Fargo Bank, N.A., Wells Fargo Securities LLC, and affiliate Structured Asset Investors LLC, as successor-in-interest to Wachovia Bank and Wachovia Securities, in an action filed by offshore investment vehicles of the German bank IKB alleging common law fraud in the sales of notes from three CDOs: Octans II, Sagittarius, and Longshore. The complaint alleged that the defendants fraudulently induced the Loreleys to invest in the CDOs' notes by failing to disclose that a non-party, Magnetar Capital LLC ("Magnetar"), had influenced the selection of collateral for the Octans II and Sagittarius CDOs while also betting that this collateral and the CDO would default. The complaint also alleged that the defendants induced the Loreleys to invest in the Longshore CDO by failing to disclose that a portion of the CDO collateral was acquired at above-market prices from another CDO's warehouse. The plaintiffs demanded a total of nearly $350 million.

The plaintiffs' allegations were dismissed in March 2013, but, in 2015, the Second Circuit reversed and remanded in part. The plaintiffs filed an amended complaint, which was dismissed in part, leaving claims of common law fraud, aiding and abetting fraud, and rescission. Discovery on the amended complaint lasted for more than two years. In late 2018, the defendants moved for summary judgment on all claims, which Judge Crotty in the Southern District of New York granted on September 17, 2019.

Loreley Financing (Jersey) No. 3 et al. v. Wells Fargo Securities, LLC et al., No. 12-3723 (S.D.N.Y.); No. 13-1476 (2d. Cir.)