UPDATE 1-Lawsuits over Wachovia collapse thrown out

* Wachovia “colossal blunder” not deemed securities fraud

* Bank nearly collapsed under Pick-A-Pay mortgage loans
(Adds KPMG comment, Wachovia settlement of separate SEC case)

By Jonathan Stempel

NEW YORK, April 5 (Reuters) – A Manhattan federal judge has
dismissed three shareholder lawsuits accusing Wachovia Corp and
its former executives of lying about the bank’s exposure to
risky mortgage loans, which caused its near collapse.

“Bad judgment and poor management are not fraud, even when
they lead to the demise of a once venerable financial
institution,” U.S. District Judge Richard Sullivan wrote in a
ruling made public on Friday.

Wachovia agreed in October 2008 to be bought by Wells Fargo
& Co (WFC.N: Quote, Profile, Research) after suffering a deposit run as credit markets
seized up and investors worried about mortgage losses tied to
its purchase of California lender Golden West Financial Corp.

Wells Fargo completed the $12.5 billion purchase on Dec.
31, 2008, after outbidding Citigroup Inc (C.N: Quote, Profile, Research), and assumed
Wachovia’s liabilities.

In a separate matter announced on Tuesday, Wells Fargo
agreed to pay $11.2 million to settle U.S. Securities and
Exchange Commission civil charges that Wachovia charged
excessive markups and used stale prices in selling
mortgage-related debt. It did not admit wrongdoing.
[ID:nN05139773]

Once the fourth-largest U.S. bank by assets, Wachovia
struggled as more borrowers fell behind on its roughly $120
billion of “option” adjustable-rate mortgages, including many
from its $24.2 billion purchase of Golden West in 2006.

The “Pick-A-Pay” loans let borrowers make low payments that
did not cover monthly interest, causing principal to rise.

‘COLOSSAL BLUNDER,’ BUT NOT FRAUD

Shareholders claimed Wachovia loosened underwriting
guidelines and aggressively marketed the loans, while publicly
touting its risk controls and “very conservative” standards.

But Sullivan said investors failed to show fraud by
Wachovia officials, including Ken Thompson, the chief executive
who bought Golden West and was ousted two years later.

“The more compelling inference is that defendants simply
did not anticipate the full extent of the mortgage crisis and
the resulting implications for the Pick-A-Pay loan portfolio,”
Sullivan wrote.

“Although a colossal blunder with grave consequences for
many, such a failure is simply not enough to support a claim
for securities fraud.”

Sullivan left intact some claims in a fourth lawsuit by
bondholders against various Wachovia defendants, various
underwriters and KPMG, Wachovia’s auditor.

Wells Fargo spokeswoman Mary Eshet said the San
Francisco-based bank is pleased there was no finding of fraud
by Wachovia or its management. She said it will defend against
allegations of misstatements in offering documents.

Ira Press and Geoffrey Jarvis, who respectively represent
plaintiffs in two of the dismissed cases, were not immediately
available for comment. Daniel Cohen, whose firm represented
plaintiffs in the third dismissed case, declined to comment.
KPMG spokesman George Ledwith declined to comment.

The cases, all in the U.S. District Court, Southern
District of New York, are: In re: Wachovia Equity Securities
Litigation, No. 08-06171; Stichting Pensionenfonds ABP v.
Wachovia Corp, No. 09-04473; FC Holdings AB et al v. Wells
Fargo & Co et al, No. 09-05466; and In re: Wachovia Preferred
Securities & Bond/Notes Litigation, No. 09-06351.
(Reporting by Jonathan Stempel in New York; additional
reporting by Joe Rauch in Charlotte, North Carolina; editing by
Matthew Lewis and Andre Grenon)

UPDATE 1-Lawsuits over Wachovia collapse thrown out