Law360 (November 20, 2024, 6:12 PM EST) -- A Massachusetts magistrate judge on Wednesday ordered Wells Fargo Advisors LLC to hand over electronic files maintained by a compliance manager who investigated potential misconduct by an employee handling accounts of TelexFree associates under investigation in a $3 billion Ponzi scheme.

Magistrate Judge Katherine A. Robertson also rejected a bid by victims of the scheme to reopen a February deposition of the manager that was conducted by plaintiffs' counsel.

Ruth Vitale had been asked in 2014 by Wells Fargo to look into whether financial adviser Marucio Cardenas had engaged in any policy violations, legal misconduct or a breach of trust when he opened and continued to service brokerage accounts for several known TelexFree associates, even after the bank had been made aware that the Brazilian government had shut down the scheme and that a U.S. Securities and Exchange Commission investigation had been launched, according to the decision.

Cardenas, like Wells Fargo, is currently a defendant in the multidistrict litigation over TelexFree, accused of tortious aiding and abetting in the scheme.

TelexFree, which was headquartered in Marlborough, Massachusetts, convinced victims, who had to pay a monthly fee to participate, that they would earn commissions for marketing what amounted to a voice-over internet service, according to prosecutors. The scheme allegedly cost approximately 2 million individuals — many of them recent immigrants — nearly $3 billion.

The plaintiffs have sued a number of financial services providers, including Wells Fargo, contending that they are liable for continuing to allow millions of dollars in ill-gotten gains to be transferred out of bank accounts in the United States as regulators closed in. Wells Fargo, according to the plaintiffs, had warnings as early as 2012 that the business was not legitimate, based on the number of transactions and charge-backs sought by victims.

The plaintiffs contend that Vitale's deposition revealed the existence of electronic files containing emails that had not been turned over during discovery.

Wells Fargo said in its opposition that those messages were turned over in document form. The request, according to the bank, came years after it turned over an investigative summary and the printed emails, and long after the deadline for discovery had passed.

Judge Robertson found that, based on the difference in formats between electronic emails saved as chains and printed-out versions that could not be considered "exact duplicates," Wells Fargo must turn over the electronic files.

"[Wells Fargo Advisors] admits that not all of the TelexFree-related emails in Ms. Vitale's electronic file are in the same form as are emails with the same content that were produced in the matter summary's supporting documentation," Judge Robertson wrote.

In denying the plaintiffs' request to reopen Vitale's deposition, the judge found that the compliance manager had been as forthcoming as possible given the passage of time since she conducted the investigation, and that fading memories are a risk that comes with a stay, which the court had granted while criminal prosecutions against the alleged organizers of the scheme were taking place. That stay was lifted in 2019.

Judge Robertson also denied the plaintiffs' request that notes from Vitale's interviews with witnesses during the investigation be turned over, finding that such materials are subject to attorney-client privilege and work-product doctrine, both of which the plaintiffs had not shown a compelling interest in overriding.

The investigation summary shows that the probe's purpose was to determine Wells Fargo's potential liability based on Caradenas' alleged conduct in maintaining accounts for the three individuals who were being investigated by the SEC at the time, the judge noted.

Wells Fargo's attorney took part in the investigative interviews, and notes kept by Vitale "are likely to disclose an attorney's mental impressions and legal theories" by virtue of the sorts of questions asked, the judge found.

While the plaintiffs acknowledged that the notes were in anticipation of litigation, their "argument appears to be that [Wells Fargo Advisors] involved its legal department in Ms. Vitale's investigation so that it could withhold facts by invoking the attorney-client privilege and the work-product doctrine," the judge wrote.

Messages seeking comment from counsel for the plaintiffs and for Wells Fargo did not immediately receive responses on Wednesday.

Wells Fargo Bank NA and Wells Fargo Advisors are represented by John O. Mirick of Mirick O'Connell, Kenneth C. Pickering of Pickering Legal LLC, and Robert W. Fuller, Adam Doerr, Fitz E. Barringer, Demi Lorant Bostian, Patrick H. Hill, Emma T. Kutteh and Garrett Steadman of Robinson Bradshaw & Hinson PA.

The plaintiffs are represented by Robert J. Bonsignore and Melanie Porter of Bonsignore Trial Lawyers PLLC, J. Gerard Stranch IV and Kyle C. Mallinak of Stranch Jennings & Garvey PLLC, Steven Rhodes of Steven Rhodes Consulting LLC, James Wagstaffe of Adamski Moroski Madden Cumberland & Green LLP, E. Powell Miller and Ann L. Miller of The Miller Law Firm PC, and R. Alexander Saveri and Geoffrey C. Rushing of Saveri & Saveri Inc.

The case is In Re: Telexfree Securities Litigation, case number 4:14-md-2566, in the U.S. District Court for the District of Massachusetts.

--Editing by Melissa Treolo.