Wednesday, May 23, 2018
News Roundup

St. Petersburg City Council approves $11.1 million settlement with Wells Fargo

ST. PETERSBURG — Taxpayers will get back $11 million in bad investments made with Lehman Brothers, the Wall Street firm that went bankrupt in 2008.

The City Council unanimously agreed to a settlement with Wells Fargo on Thursday after suing the financial giant to try to recoup $15 million in risky investments made by Wachovia Securities. Wells Fargo bought Wachovia in 2009.

While all the money hasn't hit city coffers, the "money should change hands in the next couple of weeks," said Jacqueline Kovilaritch, an assistant city attorney.

So far, the city has received $2.2 million in bankruptcy distributions from its Lehman investments. An additional $8.8 million will come from a cash payment and proceeds from selling its remaining Lehman investments.

The money, city officials cautioned, won't erase the $3 million deficit in this year's budget or help give employees raises next year.

After reimbursing the general fund for expenses spent fighting the case, the remainder will go into the city's investment funds, which took losses that were written off several years ago.

The city estimates its legal expenses at $2 million.

"We've always talked about redistributing the money to the funds," city Administrator Tish Elston said. "That's the most appropriate way to account for it."

The case went to trial in early 2012.

After six days of testimony, jurors sided with city officials, who blamed Wachovia for losses it incurred when Lehman Brothers collapsed. Seven jurors spent more than four hours deliberating the case and awarded the city $10.4 million for its losses.

Wells Fargo and the city appealed parts of the verdict.

At the time, the losses were about $15 million. But Lehman Brothers had emerged from bankruptcy, and the bonds the city held were worth about $4 million in 2012.

The city accused Wachovia of failing to alert it to three credit downgrades in the summer of 2008, a sign of corporate trouble. While they couldn't show documented evidence that the city was warned about the downgrades, Wells Fargo lawyers argued that the city had plenty of information about Lehman's issues and should have known better.

Mark Puente can be reached at [email protected] or (727) 893-8459. Follow him on Twitter at twitter.com/markpuente.

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