Ohio sues Wells Fargo over pension fund loss

* Wachovia accused of mismanagement

* Sigma said to resemble a structured investment vehicle

* Ohio AG calls Sigma unsuitable for pension fund

By Jonathan Stempel

NEW YORK, Dec 29 (BestGrowthStock) – An Ohio pension fund has sued
Wells Fargo & Co (WFC.N: ) to recover losses suffered when its
recently acquired Wachovia Corp put the fund’s money into a
risky investment vehicle that ultimately failed.

The School Employees Retirement System of Ohio, represented
by state Attorney General Richard Cordray, said it lost $29.6
million from Wachovia’s mismanagement of a securities lending
program marketed as a “low-risk” way to earn extra returns.

It said $23.7 million stemmed from Wachovia’s investment of
some of the fund’s cash in notes issued by Sigma Finance Corp,
a $53.5 billion asset-backed securities vehicle that failed in
October 2008, less than three weeks before the notes matured.

The Ohio fund said Wachovia put its money at risk despite
having held talks with other lenders as early as September
2007, at the behest of then-U.S. Treasury Secretary Henry
Paulson, to craft a bailout plan for so-called structured
investment vehicles, which Sigma resembled.

“Sigma was not a suitable investment for SERS because of
its inherent risks and lack of liquidity,” the complaint filed
last week in the Columbus, Ohio, federal court said.

“Placing SERS’ funds into a complex hybrid SIV with
substantial leveraged interest rate risk is inconsistent with
the objectives of safeguarding the principal,” it added.

The fund said it lost 95 percent of the $25 million that
Wachovia had invested in Sigma. It accused Wachovia of breach
of contract and fiduciary duty, negligent misrepresentation,
and violations of federal and Ohio securities laws.

Wells Fargo bought Wachovia on Dec. 31, 2008, and is the
fourth-largest U.S. bank by assets.

Vickee Adams, a spokeswoman for the San Francisco-based
bank, on Wednesday had no immediate comment, having yet to
review the complaint.

A securities lending program typically lets an investor
lend securities to a broker-dealer, in exchange for cash that a
bank invests on behalf of the investor. More than $2 trillion
is on loan each day according to SunGard Financial Systems’
Astec Analytics, which tracks more than 31,000 securities.

The $9.7 billion Ohio fund contended that firms that
operate securities lending programs — typically Wall Street
banks — structured them to share in clients’ gains, while
exposing clients to an “exclusive” risk of losses.

“The practice of securities lending has been aptly
described as ‘Heads, we win together. Tails, you lose —
alone,'” the complaint said, quoting The New York Times.

Cordray last month lost his bid for reelection.

The case is School Employees Retirement System of Ohio v.
Wachovia Bank NA et al, U.S. District Court, Southern District
of Ohio, No. 10-01160.
(Reporting by Jonathan Stempel in New York, editing by Dave
Zimmerman)

Ohio sues Wells Fargo over pension fund loss