Stichting Pensioenfonds ABP v. Wachovia Corp.
753 F. Supp. 2d 326
S.D.N.Y.2011Background
- In related securities actions, plaintiffs allege Wachovia and related entities violated the Securities Act and Exchange Act based on Wachovia's 2006–2008 collapse after acquiring Golden West and merging with Wells Fargo.
- Wachovia acquired Golden West on Oct. 1, 2006; Golden West specialized in Pick-A-Pay option-ARM loans and negative amortization; Wachovia allegedly shifted focus to pick-a-pay and weakened underwriting.
- Plaintiffs claim Wachovia misrepresented the conservatism of underwriting, falsely described Pick-A-Pay features (7.5% cap, 10-year recast), and misled about subprime exposure and loan quality.
- Plaintiffs further contend Wachovia concealed its subprime CDO holdings and overstated collateral values, loan loss reserves, and GAAP compliance during 2006–2008.
- The four complaints span 605 pages, with seven motions to dismiss; the court grants some in part and denies others, shaping the viability of the securities claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Section 10(b) scienter sufficiency | Equity/Stichting allege motive and access to contrary facts via insider sales and core operations. | Defendants contend motive is insufficient and findings rely on puffery; no strong inference of scienter. | Scienter not sufficiently pled; Rule 12(b)(6) grants dismissal of 10(b) claims. |
| Conscious recklessness standard | Plaintiffs argue Recklessness via access to contrary information and core operations. | Court finds lack of concrete contradictory information and weak core-operations basis. | No strong inference of recklessness; 10(b) claims dismissed. |
| Section 11/12(a)(2) standing viability | Bond/Notes plaintiffs claim standing via shelf registrations and sufficiency of tracing; Livonia/Additional Plaintiffs argue timeliness problematic. | Defendants contend lack of injury for securities not purchased; shelf registration standing disputed. | Standing issues resolved favorably for some claims; Section 11/12(a)(2) claims survive with caveats; several are dismissed for lack of standing. |
| Supplemental offerings tracing and 12(a)(2) viability | Plausible tracing to supplemental offerings for Section 11/12(a)(2). | Tracing is insufficient for certain supplemental offerings; some dismissal appropriate. | Section 11 claims on supplemental offerings survive; 12(a)(2) standing generally upheld for supplemental offerings. |
| GAAP and ARS allegations | GAAP violations and ARS misstatements support scienter. | GAAP/ARS claims are duplicative or speculative; not enough to plead scienter. | GAAP/ARS allegations not independently establishing scienter; rejected as basis for 10(b) liability. |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (requires strong inference of scienter, not merely plausible allegations)
- Ashcroft v. Iqbal, 129 S. Ct. 1937 (U.S. 2009) (plausibility standard for pleading; not mere conclusions)
- ATSI Communications v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (heightened pleading for fraud; PSLRA compliance)
- ECA, Local 134 IBEW Joint Pension Trust v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (requires strong inferences of scienter for securities fraud; discusses core operations context)
- South Cherry Street, LLC v. Hennessee Group LLC, 573 F.3d 98 (2d Cir. 2009) (conscious misbehavior/recklessness framework; non-fortuitous inferences)
- In re PXRE Group, Ltd. Sec. Litig., 600 F. Supp. 2d 510 (S.D.N.Y. 2009) (recklessness standards and pleading in complex securities cases)
- In re Morgan Stanley & Co. Global Sec. Litig., up to 592 F.3d 347 (2d Cir. 2010) (Section 11/12 pleading standards; corporate/individual liability distinctions)
- Atlas Air Worldwide Holdings, Inc. Sec. Litig., 324 F. Supp. 2d 474 (S.D.N.Y. 2004) (core operations doctrine considered in scienter analysis)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (articulates elements for strong inference of conscious misbehavior or recklessness)
- Dynex Capital Inc. Sec. Litig., 531 F.3d 190 (2d Cir. 2008) (discusses access to contrary information and Dynex I framework for recklessness)