Arguing for $1000 an Hour

I spent Friday, May 14, 2010 in a St. Louis court room. It was a quiet, rainy morning. Inside the Court House, a diverse group of deputies, lawyers, people looking to find the right court room, were all moving at a leisurely pace. Hardly a sense of the drama that was about to break-out in Court Room No. 8.

Inside Court Room No. 8 gathered some of the highest priced lawyers in America representing one of Wall Street’s biggest players, A.G. Edwards, now Wells Fargo Advisors. What was at stake was weather Judge Angela T. Quigless would approve a proposed settlement of a class action law suit against A. G. Edwards.

I was there because I am a member of the class that law suit was trying to serve.  While I never knew it or realized it, a big time New York law firm has been representing me in a local St. Louis Court in a law suit in which it was claimed that A.G Edwards had received about 225 million dollars in secret commissions and fees for steering its client (like me) to certain mutual fund investments. Sometimes called “Pay to Stay”, the argument was that the independent judgment of brokers was compromised and that account holders (like me) were steered to keep investments that might not be in my best interest.

It turns out after about 5 years of haggling, "my" New York lawyers figured out they were losing and that they needed to settle the case. It wasn’t easy because Wells Fargo thought they were winning and they were not that interested in settling. Well, if you believe everyone, after some really tough negotiations, a “fair, just and reasonable” settlement was arrived at by the parties and they wanted Judge Quigless, an African American woman judge whose story is as much the amazing American dream as President Obama’s story, to approve this deal.

Here is the deal the parties came up with as “fair, reasonable and adequate.”
Create a 60 million dollar resolution allocaed as follows:

AG Edwards will give current account holders a credit of $8.00 a year for 3 years against expenses. Worth about $34 million over three years fees that they might otherwise have collected, the fees would be waived if the account holder (me) would submit a voucher that is to be sent out in the mail once the settlement is approved. (That is $.66 a month for three years, during which Wells could increase its fees any amount it wanted to offset the credits.)

AG Edwards will pay former account holders actually $20.50 in cash! If they can find them. This is about $6 million in real cash. (If they could find them.)
AG Edwards will pay the lawyers who sued them $21 million – in real cash.
Any unclaimed money would be then given to the Wells Fargo Foundation to be used to help organizations that promote home ownership among low income populations.

If that sounds odd to you, it got me mad.  I decided to “tell it to the Judge” – and with the help of my long time friend and lawyer, Jay Halfon, we took the trip at our own expense to St. Louis to bring a different voice to these proceedings.

So there we sat in Court Room No 8 waiting our turn to ask what was in the settlement for the “little guys”. What we listened to was a lawyer tell the judge why legal fees that were averaging nearly $1000 per hour and para-legal fees of over $800 dollar were justified because of the good layering in the case.  My eyes glazed over as the lawyer for the lawyers – a former Supreme Court Justice in Missouri – pains taking reviewed a formula that nearly doubled regular fees because of the “good work” that was done.

When it was our turn, we told the Judge we thought the settlement was a sweetheart deal that benefited only A. G. Edwards and the lawyers and left the account holders “holding the voucher” so to speak.

The real problem is the proposed settlement had nothing at all in it that addressed the underlying problems that started the law suit. Failure to disclose material information to account holders and failure to operate in the account holders interest because “kick back” style fees were being received from mutual fund companies.

So we asked the Court to focus the settlement on the problems of financial literacy and effective disclose by creating an independent fund that would support innovative consumer education programs and customer advocacy for better disclosures.  One program in particular that I mentioned was “Lifesmarts” a program of the National Consumers League where I serve on the Board.  Lifesmarts is a national contest that pits high school teams against each other in a question and answer format. We pointed out to the court that there were many other programs that would, if appropriately funded, help make sure account holders and future account holders would be less likely to fall victim to the schemes alleged to have been perpetrated by A.G. Edwards. It is important to note that A.G. Edwards, now Wells Fargo Advisors, denies it ever did anything wrong and has fought this case tooth and nail.

And that is the real problem. Tens of millions of dollars are spent in litigation by lawyers who themselves make millions a year all in the name of the “little guy”.  And when things don’t go well, the lawyers and the bank take care of themselves and somehow forget that this was supposed to be about me – the account holder.

We thought the Judge liked what we had to say. But the deal also seemed fixed.  Who were we to stand up to Wall Street one-thousand dollars an hour lawyers?  We'll find out. Stay tuned.