Case: 2:10-cv-01160-ALM-TPK Doc #: 1 Filed: 12/22/10 Page: 1 of ...

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Case: 2:10-cv-01160-ALM-TPK Doc #: 1 Filed: 12/22/10 Page: 28 of 36 PAGEID #: 2882. Wachovia made each of the Other Investments using its own discretionand without consulting or advising SERS. The Other Investments were either improperat the time they were made or they became improper – and should have been liquidated –before SERS sustained significant losses.83. As a result of Wachovia’s breach of contractual, fiduciary and other dutiesowed to SERS, SERS sustained cumulative losses of $5,859,065.97 on the OtherInvestments.VI.FIRST CAUSE OF ACTION: BREACH OF CONTRACT84. Plaintiff repeats and re-alleges each and every allegation contained aboveas if fully set forth herein.85. Exhibit A to the SLA, Collateral and Investment Guidelines, sets forth theobjectives and permissible investments for Wachovia’s investment of SERS cashcollateral funds. “Key objectives for managing Investment Account Assets” includedmaintaining “a diversified portfolio of credit-quality instruments and [t]o maintainadequate liquidity while safeguarding the return of principal….” Wachovia violatedthese objectives by purchasing Sigma and the Other Investments and holding them evenafter Wachovia knew that doing so would not achieve the objectives in the Collateral andInvestment Guidelines.86. The Collateral and Investment Guidelines also specified permissible typesof investments. The unique structure of Sigma rendered it an impermissible investment.The Collateral and Investment Guidelines did not permit investment in MTNs issued by alimited purpose finance company. Moreover, Sigma’s unique structure made it a high28
Case: 2:10-cv-01160-ALM-TPK Doc #: 1 Filed: 12/22/10 Page: 29 of 36 PAGEID #: 29risk investment that clearly did not conform to SERS’ objectives and maintainingliquidity and “safeguarding the return of principal.”87. Wachovia also breached the SLA by negligently performing its investmentduties. Section X, 10.1, Standard of Care, of the SLA makes Wachovia expressly liablefor “negligence, bad faith or willful misconduct….” Wachovia also held itself out as anexpert investment advisor that would become SERS’ investment department with respectto the investment of the cash collateral. Moreover, the standard of care was heightenedby the fact that Wachovia was operating in a fiduciary capacity to SERS. Pursuant toSection X, 10.1 of the SLA, Wachovia was liable for costs, expenses, damages, and feesas a result of failing to fulfill its duties.88. Wachovia’s investment of cash collateral funds in Sigma and the OtherInvestments and continued holding of Sigma and the Other Investment even when it wasknown to Wachovia that additional losses would result was at a minimum negligent andmore likely bad faith or willful. Wachovia also breached its duties by failing to sharewith SERS the knowledge it possessed concerning Sigma’s serious financial difficultiesin 2007 and 2008, and discussing the options with SERS.89. SERS suffered substantial losses as a result of Wachovia’s breach of theSLA.VII.SECOND CAUSE OF ACTION: BREACH OF FIDUCIARY DUTY90. Plaintiff repeats and re-alleges each and every allegation contained aboveas if fully set forth herein.91. A fiduciary relationship arose between Wachovia and SERS, imposingduties of loyalty, impartiality, good faith, fair dealing, due candor, and diligence on29
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Case: 2:10-cv-01160-ALM-TPK Doc #: 1 Filed: 12/22/10 Page: 1 of ...

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