Wells Fargo Sued Over Handling of WestLB’s CDO Vehicle

Wells Fargo & Co. (WFC) was accused in a lawsuit of mishandling the investments of a collateralized debt obligation vehicle created by WestLB AG, a German state-owned bank that was bailed out and dissolved after the 2008 financial crisis.

Erste Abwicklungsanstalt, a German public agency created to take over and wind up WestLB’s assets, and House of Europe Funding I Ltd., the Cayman Islands-based CDO issuer, filed a complaint yesterday in federal court in Manhattan.

They accused Wells Fargo, as trustee and collateral administrator, and Collineo Asset Management GmbH, as the asset manager, of “rampant mismanagement” and “flagrant disregard” of their duties by investing more of the funds raised by House of Europe Funding I in other CDOs than they were allowed.

The mismanagement caused or is expected to cause about $160 million in losses to Europe House Funding I, according to the complaint.

WestLB created House of Europe Funding I in 2003 as a CDO issuer that used the money it raised by selling securities to invest in portfolios of assets, including bonds, loans and other debt obligations, according to the complaint.

Dusseldorf-based WestLB, whose origins dated to 1832, ceased operations last year.

“There is no merit to this lawsuit,” Jen Hibbard, a Wells Fargo spokeswoman, said in an e-mailed statement. “We believe we fully complied with our contractual obligations and have strong factual and legal defenses to the claims.”

The case is House of Europe Funding I Ltd. v. Wells Fargo Bank N.A., 13-00519, U.S. District Court, Southern District of New York (Manhattan.)

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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