Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-04518/USCOURTS-cand-3_05-cv-04518-26/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 28:1331 Fed. Question: Securities Violation

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

RONALD SIEMERS, individually and on

behalf of all others similarly situated,

Plaintiff,

 v.

WELLS FARGO & CO.; WELLS FARGO

FUNDS MANAGEMENT, LLC; WELLS

CAPITAL MANAGEMENT, INC.; H.D.

VEST INVESTMENT SERVICES; WELLS

FARGO INVESTMENTS, LLC; STEPHENS,

INC.; and WELLS FARGO FUNDS TRUST,

Defendants. /

No. C 05-04518 WHA

REQUEST FOR 

FURTHER BRIEFING

The reply schedule will be extended to MONDAY, JANUARY 22 at NOON and the page

limit extended to 12 pages so that counsel may, in addition to whatever reply they otherwise

wish to make, can address the following. It is unnecessary to repeat the full question before

each answer but please give specific and detailed answers to each of the following:

1. Address this hypothetical. Assume the prospectus stated that the

investment-advisor fees had been and would continue to be used primarily to employ special

premier investment experts to select the funds picks. Assume that this was untrue and that no

such expert was ever hired or used and that the funds picks were more or less random. Assume

the investment advisor simply pocketed the fees for very little work. Assume the amount of the

fees was fully disclosed and that the only problem was the failure to follow through and obtain

Case 3:05-cv-04518-WHA Document 196 Filed 01/17/07 Page 1 of 3
United States District Court

For the Northern District of California

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the special premier expert advice. Assume the misrepresentation was deliberate. Under the

caselaw, would there be a Section 10(b) claim? Disclose caselaw both ways. How close to our

scenario, as pled, is this hypothetical?

2. For the prospectuses in question, did they accurately disclose the amount of the

investment advisor fees? Did they state how the fees would be used by the advisors? Did they

say what specific benefits the funds would receive in exchange for these fees? This is not a

hypothetical. This should be answered based on the actual proposed pleading and the actual

wording of the prospectuses in question.

3. What allegations in the proposed complaint permit a strong inference that the

broker-dealer defendants knew that the investment advisors were not providing to the funds the

research and other services promised in the prospectus? 

4. Now, a different hypothetical. Assume that the prospectus stated that it was the

practice of the funds managers to direct all trade, on behalf of the fund, through discount,

low-cost broker-dealers. Assume, in fact, all trades were directed to a related affiliated

brokerage house charging high-end rates and that, as a result, the expense burden on the fund

was higher than would have been the case if a discount broker had been used. Under the

caselaw, would there be a Section 10(b) claim? How close to our scenario, as pled, is this

hypothetical?

5. Plaintiff’s argument seems to have shifted, at least in emphasis. To avoid the

problem of a predominance of individual questions as to which investors received and relied on

“steering” recommendations, counsel now pins their argument on the class-wide prospectuses. 

Allegedly, the prospectuses were materially misleading for two basic reasons. First, while they

fully disclosed the amount of the fees that would be taken out of the funds, they led investors to

believe that those fees were worthwhile and would be used to pay for expert research and

services. In fact, the fund did not receive any such expert research or services. The money was

instead used to fund kickbacks to grow the funds. The actual alternative use of the funds is,

however, less important than the misrepresentation that the diverted funds were being used to

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For the Northern District of California

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benefit the fund. Second, the directed brokerage was a hidden cost. Instead of obtaining the

lowest commission for the trades made on behalf of the fund, the trades were directed to

brokerage houses charging materially greater commissions without any corresponding benefit to

justify the difference. Based on these two alleged misrepresentations in the prospectuses,

counsel claim that the marketplace was misled into believing that the “loads,” while perhaps

high, were justified by the benefits to be provided to the funds. Under Basic, counsel seeks

class-wide relief to recover the shortfall. Both sides should first address how accurately this

summary captures plaintiff’s argument and then critique it.

6. Address the applicability of Affiliated Ute to this case and any subsequent

caselaw limiting Affiliated Ute.

7. Plaintiff’s counsel says they are willing to plead more “if the Court desires.” 

This is simply a stratagem to wait and see how the Court rules. In addition to the 12-page reply,

plaintiff’s counsel shall file and serve whatever further allegations they can in good faith make,

including the extent to which the plaintiffs received and relied on “steering” recommendations. 

This should be in a separate document in pleading format. Just include the new allegations and

give each paragraph a number separate from those in the present proposed pleading. For

example, if a new paragraph would logically go after Paragraph 22 in the now-pending

proposed pleading, then it should be numbered “22A” or in some other manner indicating where

it would go. Once the Court reviews the filings, it will decide whether any further briefing is in

order.

IT IS SO ORDERED.

Dated: January 17, 2007. WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

Case 3:05-cv-04518-WHA Document 196 Filed 01/17/07 Page 3 of 3