KPMG has agreed to pay $37 million as part of a $627 million settlement in a class-action lawsuit brought by institutional investors over its former audit client Wachovia.
The bulk of the settlement, $590 million, will come from Wachovia, which is now owned by Wells Fargo, along with its affiliated entities, some former Wachovia officers and directors and various underwriters.
“We’ve agreed to settle to avoid the cost of litigation and to put this matter behind us,” said KPMG spokesman George Ledwith.
The plaintiffs included institutional investors Orange County Employees’ Retirement System, the Louisiana Sheriffs’ Pension and Relief Fund, and the Southeastern Pennsylvania Transportation Authority. They were court-appointed representatives of a class of investors who purchased Wachovia bonds and preferred securities between July 31, 2006 and May 29, 2008.
The complaint alleged that undisclosed problems in Wachovia's multi-billion dollar option-ARM “Pick-A-Pay” adjustable rate mortgage loan portfolio brought the financial institution to the brink of insolvency by September 2008. The plaintiffs claimed that Wachovia’s publicly disclosed loan loss reserves were materially inadequate at all relevant times, in violation of U.S. GAAP. Wachovia was one of the largest financial institutions to be bailed out during the financial crisis.
In addition to being one of the 15 largest securities class action recoveries to date, the $627 million settlement is also believed to be the largest ever in a class-action case asserting only claims under the Securities Act of 1933, according to the plaintiffs’ attorneys, Bernstein Litowitz Berger & Grossmann LLP, Kessler Topaz Meltzer & Check LLP, and Robbins Geller Rudman & Dowd LLP, who were co-lead counsel for the class. The case also represents one of the handful of largest securities class action recoveries ever obtained where there were no parallel civil or criminal securities fraud actions brought by government authorities.
The case was brought in the U.S. District Court for the Southern District of New York. Both settlements must be reviewed and approved by Judge Richard J. Sullivan after formal notice is provided to the class.
