A federal judge on Thursday rejected Wells Fargo & Co.’s offer to dismiss a lawsuit claiming it defrauded shareholders over its ability to bounce back after five years of scandals over its treatment of customers.
The fourth-largest U.S. bank has been operating since 2018 under consent orders from the Federal Reserve and two other U.S. financial regulators to improve governance and oversight, with the Fed also capping Wells Fargo’s assets.
Shareholders said bank officials falsely claimed in television interviews, analyst calls and congressional testimony that the bank was improving, when regulators actually viewed its progress as “deficient” and ” unacceptable “.
US District Judge Gregory Woods in Manhattan said shareholders plausibly alleged that certain statements by various bank officials, including former chief executive Tim Sloan, were “willfully or recklessly false or misleading.”
According to shareholders, San Francisco-based Wells Fargo lost more than $ 54 billion in market value as the truth gradually came to light over a two-year period ending in March 2020.
Woods also dismissed the claims against current chief executive Charles Scharf, saying he was not guilty of the disputed claims.
The scandals prompted Warren Buffett’s Berkshire Hathaway Inc. to sell almost all of its 10% stake in the bank.
“We will continue to vigorously defend the litigation and strongly disagree with the claims,” Wells Fargo said in an emailed statement.
Sloan’s lawyers did not immediately respond to requests for comment.
The move is a setback for Wells Fargo’s rebound after disclosures including opening around 3.5 million accounts without client permission and billing hundreds of thousands of borrowers for auto insurance that they didn’t need.
Wells Fargo has paid more than $ 5 billion in fines and the Fed’s $ 1.95 trillion asset cap is limiting the bank’s growth.
Sloan abruptly stepped down as CEO after 2.5 years in March 2019. A year later, Wells Fargo canceled a $ 15 million bonus for him.
In his 61-page decision, Woods did not decide whether bank officials intended to defraud shareholders.
But he said it would have been “nearly impossible” for Sloan to ignore criticism from regulators.
“Based on the facts on the ground, Mr. Sloan knew or, more importantly, should have known that he was twisting important facts relating to the company,” Woods wrote.
Shareholders are led by the state of Rhode Island and pension funds in Louisiana, Mississippi and Sweden.
Their lawyer Steven Toll said he was happy they could prosecute the “vast majority of alleged fraudulent statements”.
The case is In re Wells Fargo & Co Securities Litigation, US District Court, Southern District of New York, No. 20-04494.
(Reporting by Jonathan Stempel in New York; editing by Jonathan Oatis, Aurora Ellis and Cynthia Osterman)
Legislation claims fraud
Interested in Complaints?
Receive automatic alerts for this topic.