A Dow Jones report said the School Employees Retirement System of Ohio charged that Wachovia – purchased by Wells Fargo in December 2008 – breached its duties to the fund by making overly risky securities lending investments – specifically in Sigma Finance, a large structured investment vehicle that collapsed in the financial crisis.
The suit said the fund began its securities lending relationship with Wachovia in 2004 seeking “a low-risk mechanism” for institutional investors looking to earn “a nominal return…without any additional risk to their securities,”
In a statement to Dow Jones, Wachovia denied wrongdoing. “Wachovia Global Securities Lending denies the allegations made in this lawsuit and will vigorously defend the case,” the statement said. “All the investments were highly rated at the time of purchase. We are confident that Wachovia acted appropriately and in accordance with our clients’ best interests at all times.”
The fund wasn’t alone in its losses, as other funds suffered when their agents used the collateral to invest in risky pools of securities that ultimately had big losses (see Plowing New Fields, Lessons Learned).
Also, a U.S. Senate committee announced it is investigating pension funds’ use of securities lending (see US Senate Launches Investigation Into Securities Lending).
The latest suit against Wachovia/Wells is here.