Compliance

Wells Fargo Wins Some, Loses Some in Self-dealing Case

April 9, 2010 (PLANSPONSOR.com) – A federal court judge has certified as a class action a lawsuit against Wells Fargo over offering mutual funds from one of its affiliates as 401(k) plan investments.

By PLANSPONSOR staff editors@plansponsor.com | April 09, 2010

Before reviewing the elements for class certification, Judge Paul A. Magnuson of the U.S. District Court for the District of Minnesota dismissed claims that Wells Fargo violated Employee Retirement Income Security Act § 406, 29 U.S.C. § 1106, by causing the plan to invest in Wells Fargo controlled funds and by paying investment management and other fees in connection with those investments. Magnuson agreed with Wells Fargo’s contention that Figas knew as early as 1999, but in any case by 2003, that the plan was investing in Wells Fargo controlled funds and that the plan paid fees to invest in those funds, and so the claim was time-barred under ERISA.  

However, the claims that investment in the funds of Wells Fargo Fund Management was a breach of the Employee Benefit Review Committee’s fiduciary duties and violated ERISA § 404, 29 U.S.C. § 1104, and that Wells Fargo is liable for abetting the Committee’s alleged breaches of fiduciary duties were not dismissed and it was for these claims that Magnuson certified a class.  

As both parties conceded that the proposed class is so numerous that joinder of all the members is impracticable and there are questions of law or fact common to the class, Magnuson moved on to consider whether the claims or defenses of the representative parties are typical of the claims or defenses of the class.

He rejected Wells Fargo’s arguments that plaintiff Robin E. Figas cannot make out any claim related to allegedly excessive fees because Wells Fargo paid for the majority of the fees in her investment account, and that because some plan participants’ investments made more money than the funds Figas points to as the “best available alternatives,” Figas’s claims that her account lost money are not typical of the claims of the class.  

Magnuson pointed out that Figas does not make a separate “excessive fee” claim, but claims that, by paying fees to WFFM that were higher than the fees that might have been charged by other, non-

Wells Fargo-related funds, the fiduciaries breached their fiduciary duties to the plan and its beneficiaries. He also said each individual plan participant’s investment decisions are not necessarily relevant to the typicality inquiry, as the claims are brought on behalf of the plan itself, not on behalf of each individual who participated in the plan.   

Finally, Magnuson found that Figas and her counsel will fairly and adequately protect the interests of the class.  

The case is Figas v. Wells Fargo & Co., D. Minn., No. 08-4546 (PAM/FLN), 4/6/10.

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