venerdì 16 ottobre 2009

Cameron Harris sues Wachovia

Cameron Harris sues Wachovia
Lawsuit alleges Ken Thompson, other bank officers misled investors about company's health.
By Rick Rothacker
Charlotte Observer, Oct. 07, 2009

http://media.charlotteobserver.com/smedia/2009/10/07/08/85R5902_cameron.harris.JPG_2.embedded.prod_affiliate.138.jpg
On a hunting trip in February 2008 with Wachovia chief executive Ken Thompson, Charlotte businessman Cameron Harris was so worried about his stock in the weakening bank that he told the CEO he was thinking of selling it.

But Thompson said he was confident in his bank and was buying several million dollars worth of Wachovia shares himself, according to a lawsuit that presents that version of the hunting trip. Harris now feels betrayed, and he and his relatives are accusing Thompson and others of fraud and other offenses.

The suit also alleges that while the Harrises held their shares, Thompson and other Wachovia executives were unloading theirs.

The suit publicly airs a dispute between top business leaders in a normally tight-knit Charlotte community that works and socializes together. It's the latest to allege that Wachovia, its officers or its directors misled investors about the company's health as burgeoning mortgage losses led to the bank's near-collapse last fall and its ultimate sale to Wells Fargo.

The suit, filed in Mecklenburg County Superior Court last week, lists Harris, his wife, Dee-Dee, and son Gary as plaintiffs. Harris is the grandson of an N.C. governor and the brother of prominent developer Johnny Harris. He sold his namesake insurance firm to Wachovia in 2002 and reportedly was paid in Wachovia stock. This year, he launched a new insurance firm.

Together, the Harrises held more than 900,000 Wachovia shares during the period covered by the suit, "constituting a significant portion of their wealth," the suit states. Harris and his attorney did not respond to a request for comment. San Francisco-based Wells Fargo bought the Charlotte bank last year, giving Wachovia shareholders only a fraction of a Wells share for each of their Wachovia shares.

The complaint names as defendants Wachovia, Wells Fargo, Thompson, former general bank head Ben Jenkins, former chief risk officer Don Truslow, former chief financial officer Tom Wurtz, Thompson's successor Bob Steel and other unnamed defendants. Thompson, Wells Fargo, Steel and Jenkins declined comment. Wurtz and Truslow did not return calls seeking comment.

Harris had signaled plans to file a suit this summer when he opposed a settlement in a separate class-action shareholder suit in N.C. Business Court.

The 96-page complaint centers on Golden West, the California-based mortgage giant Wachovia agreed to buy at the peak of the housing market in May 2006. Golden West's portfolio of so-called option adjustable-rate mortgages later soured in the downturn, spurring loan losses that ballooned starting in the spring of 2008 and later doused investor confidence in the overall company.

According to the suit, the defendants concealed from plaintiffs that Golden West's "underwriting standards were far more risky than described in the public disclosures and offering materials, and were insufficient to determine adequately the creditworthiness of borrowers." Golden West did not rely on borrowers' credit scores and verified employment and assets on a case-by-case basis, the suit states.

Later, to soothe investors about its Golden West purchase, Thompson and other officers "repeatedly issued reassuring but inaccurate statements about the safety and stability of Golden West's and Wachovia's loan portfolios," the suit states. In conference calls with analysts and in securities filings, executives touted Golden West's conservative underwriting practices and "superior credit quality," the suit states.

Beyond Golden West, Wachovia also failed to disclose the bank's exposure to complex securities known as collateralized debt obligations, or CDOs, the suit states. These investments later produced billions in losses when the housing market sank.

In addition to public statements, the Harrises also relied on private conversations with Thompson and Jenkins, according to the suit. In June 2007, for example, Harris spoke on the phone with Thompson and asked him about Wachovia and his investment. Thompson represented that "Wachovia's loan portfolio was solid and that Wachovia had practices in place to carefully manage risk so that the decline in the housing market would not hurt Wachovia or his investment," the suit states.

In addition to other phone calls, Thompson visited with Cameron and Gary Harris on the Feb. 18, 2008, hunting trip. Cameron Harris expressed concern about the housing market and Wachovia's falling share price, according to the suit. Harris said he was considering selling his stock, but Thompson said the stock was a good buy at the current price and that Wachovia was not planning to cut its dividend, the suit states.

Thompson added that he was confident in Wachovia, the complaint states, and that he was "then buying several million dollars worth of Wachovia stock."

Harris also talked with general bank head Jenkins about Wachovia in 2007 and 2008 on the phone and on trips to Palm Beach, Fla. Jenkins assured him that Wachovia's business was "stable and its loan portfolio was well collateralized," the suit states.

The Harrises considered selling Wachovia shares in the summer of 2007, when the stock started trading around $50 per share, and later in mid-February, when it was still trading above $30, according to the suit. They refrained based on "misrepresentations" by Thompson, Jenkins and other defendants, the suit states. A former Wachovia share is now worth one-fifth of a Wells Fargo share, or about $5.71 at Tuesday's close.

While the Harrises held their shares, Wachovia executives were selling, the complaint alleges. Thompson sold 15,000 shares on Feb. 20, 2008, at a price of $34.18 for a total of $513,721, shortly after the hunting trip, the suit states. The next month, he sold 9,500 shares for $250,000. That February, Thompson owned about 4.5 million shares, including about 3.5 million tied to stock options and other company benefit programs, according to a proxy filing.

During 2007 and 2008, Thompson reaped $5.2 million selling shares, while chief risk officer Truslow made $3.6 million and CFO Wurtz made $3.7 million, the suit states. The defendant's trading was "unusual and suspicious," the suit states. In Thompson's case, he sold just over 61,000 shares in the 16 months preceding the Golden West acquisition, but sold more than 116,000 shares in the 14 months between February 2007 and April 2008, according to the suit.

The suit does not mention Thompson's purchase of 100,000 shares worth $3.9 million in November 2007. At the time, he called it a "fabulous investment."

The first major public sign of Wachovia's problems surfaced in April 2008 when the bank announced a first-quarter loss, slashed its dividend and raised capital. By June, the board, which approved the Golden West purchase, had forced Thompson out.

Steel, the former Treasury official who replaced Thompson in July 2008, also made misleading statements about the bank's prospects, the suit states. The complaint cites comments Steel made on Jim Cramer's CNBC "Mad Money" show on Sept. 15, only weeks before the bank fell into deals with Citigroup, then Wells. On the show, he said Wachovia had "a great future as an independent company," but also said he would do what was best for shareholders.

The Securities and Exchange Commission is reportedly investigating those remarks. "In an extremely challenging and volatile time, Mr. Steel always did his best to convey the position of Wachovia accurately," a spokesman for Steel said in January.

The suit, which accuses the defendants of fraud, negligent misrepresentation and other offenses, says the Harrises have suffered substantial monetary losses as well as "mental anguish and suffering." The complaint, which does not seek class-action status, seeks unspecified incidental and punitive damages, plus attorney's fees and costs.

Staff writer Christina Rexrode contributed

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