Wells Fargo class action alleges investors lost $500M in ‘reckless’ hedge fund move

Wells Fargo class action lawsuit overview:

• Who: Plaintiffs Michael Dillon and Marc Kafka have filed a class action lawsuit against Wells Fargo Securities LLC.
• Why: Wells Fargo allegedly recklessly liquidated a portfolio in bad faith, causing investors to suffer irreversible losses.
• Where: The Wells Fargo class action lawsuit was filed in Illinois federal court.

Wells Fargo Securities LLC caused investors to suffer irreversible losses of more than $500 million by liquidating a portfolio in bad faith, according to a class action lawsuit filed Feb. 3 in Illinois federal court.

Plaintiffs Michael Dillon and Marc Kafka say they held shares in Wells Fargo’s LJM Preservation and Growth Fund, a public mutual fund when Wells Fargo caused the fund to be liquidated on Feb. 6, 2018.

“Wells Fargo acted precipitously, recklessly, and with willful malfeasance following a volatility sell-off on February 5, 2018,” the Wells Fargo class action lawsuit alleges. 

“Wells Fargo engaged in extreme bad faith conduct with the foreseeable … consequences that it would irreversibly destroy the interests of plaintiffs and thousands of investors who were the owners of or investors in the portfolio.”

LJM fund would have recovered most losses after market stabilized, Wells Fargo class action says

The LJM fund reportedly plummeted by 80% between Feb. 2 and 7, 2018 during a volatile trading week. In response, LJM executed “risk-reducing trades” to recover the losses on Feb. 5, 2018, but the trades were not fully reflected in its account statements with Wells Fargo.

The Wells Fargo hedge fund class action lawsuit alleges Wells Fargo interfered even though LJM would have been in a position to recover most of its “unrealized paper losses” when the market stabilized. Instead, Wells Fargo allegedly orchestrated the liquidation of the portfolio even though it allegedly had no legal right to do so.

Dillon and Kafka say they lost between $500 million and $800 million due to Wells Fargo’s conduct. They filed the Wells Fargo class action lawsuit on behalf of themselves and a proposed class of people who held shares in the LJM fund on Feb. 5 and 6, 2018 and who had limited partnership interests in any of the partnership funds on those dates.

The Wells Fargo hedge fund class action lawsuit asserts claims for gross negligence, fraud, tortious interference with contractual relations, tortious interference with business relations, negligent supervision, breach of contract, breach of the implied covenant of good faith and fair dealing, and aiding and abetting breach of fiduciary duty.

The Consumer Financial Protection Bureau has reportedly ordered Wells Fargo Bank to pay $3.7 billion for allegedly charging illegal fees and interest on loans and accounts.

Were you affected by Wells Fargo’s decision to liquidate the LJM fund? Tell us what you think of the Wells Fargo class action lawsuit in the comments!

The plaintiffs are represented by Carl V. Malstrom and Mark C. Rifkin of Wolf Haldenstein Adler Freeman & Herz LLP and Kenneth Gilman of Gilman Law LLP.

The Wells Fargo hedge fund class action lawsuit is Michael Dillon, et al. v. Wells Fargo Securities LLC, Case No. 1:23-cv-00684, in the U.S. District Court for the Northern District of Illinois, Eastern Division.

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