COLUMBUS, Neb. (AP) -- The managers of Nebraska Public Power District's retirement plan have accused Wells Fargo of misleading them about the risks associated with a securities lending investment program.
NPPD retirement plan managers sued the San Francisco-based bank for $1.5 million last month, and the lawsuit was moved from Nebraska courts to federal court in early November.
NPPD said Wells Fargo marketed its securities lending program as a conservative option for the retirement funds of 2,400 people. But instead of the $140,000 in additional returns the bank projected annually, NPPD's retirement fund lost money.
Wells Fargo hasn't responded directly to NPPD's allegations. The bank has until Dec. 10 to reply in court.
The Columbus Telegram reported (http://bit.ly/Tqg7Cn ) NPPD opted out of a class-action lawsuit last summer that institutional investors filed against Wells Fargo over its securities lending program.
The managers of NPPD's retirement fund agreed to lend stock to traders through a Wells Fargo program that promised the cash collateral NPPD received for the stock would be placed in conservative, high-quality investments.
NPPD's retirement plan is a 401(k) account to which employees and the utility contributes. The retirement plan's involvement with the securities lending program began in August 2007.
Wells Fargo officials told the utility that none of its clients had ever lost money in the program. But the utility said in the lawsuit that Wells Fargo invested some of its cash collateral in risky investments that lost value during the financial crisis of 2008.
NPPD said Wells Fargo had some of the money from the securities lending program invested in risky asset-backed securities before the utility signed up, so the bank knew the program's money wasn't all being invested conservatively.
NPPD claimed in the lawsuit that Wells Fargo misrepresented details of its securities lending program and failed to provide timely updates on the investments in order for the utility's trust fund committee to protect retirement plan participants' assets.
NPPD says Wells Fargo talked the utility out of withdrawing from the securities lending program in the summer of 2008. Then in November 2008, the bank told NPPD for the first time that its retirement plan was losing money.
Information from: Columbus Telegram, http://www.columbustelegram.com