A top Wachovia Corp. executive urged the Charlotte bank to more closely examine Golden West Financial Corp.'s loans before buying the California mortgage lender in 2006 but was told to "stay out of it," according to an amended complaint filed in an investor lawsuit.
David Carroll, now a leader at Wells Fargo & Co., expressed reservations about Golden West's portfolio and opposed the deal as a "bad idea," the complaint states, citing a confidential witness. The complaint also doesn't name the person who dismissed Carroll's concerns.
The Charlotte bank's $24 billion acquisition of Oakland, Calif.-based Golden West gave the bank a portfolio of nontraditional mortgages that later produced rising losses as housing prices plunged. Worries about the $120 billion loan book helped undermine investor confidence in the company, which was sold to Wells Fargo at the peak of the financial crisis in 2008.
Carroll has emerged as Wachovia's highest-ranking survivor at San Francisco-based Wells. He escaped the stain of the Golden West deal, and now the complaint suggests he may have been prescient about its potential pitfalls.
The lawsuit, first filed in California in January 2009, alleges Wachovia and former executives failed to disclose the "true nature and quality" of the Golden West portfolio and misled investors about the bank's exposure to "billions of dollars of losses" from other mortgage-related assets, such as collateralized debt obligations. The case's three lead plaintiffs are pension funds that bought Wachovia bonds.
The suit is part of a group of similar suits now in New York federal court that name Wachovia, Wells and former executives and directors as defendants. U.S. District Judge Richard Sullivan last month allowed plaintiffs to file amended complaints by May 28.
Before the new round of complaints, Wells Fargo had filed motions to dismiss the cases, generally contending plaintiffs failed to allege primary violations of securities law. Wells spokeswoman Mary Eshet said the company intends to file motions to dismiss again. She declined further comment.