Wells Fargo has spent the last year and change mired in scandal, after it came to light that, under pressure from the organization, employees had fraudulently opened as many as 3.5 million accounts in the names of people who never wanted or requested them. Since then, the bank has been doing its best to wriggle out of the numerous lawsuits, with mixed results. This week, a judge ruled that Wells can’t avoid accountability in one suit brought by shareholders.
Wells Fargo had sought to have the shareholder lawsuit, which names not only the bank, but several of its current and former executives and board members as defendants, dismissed.
The suit basically argues that since 2011, top leadership inside Wells Fargo either “knew or consciously disregarded that Wells Fargo employees were illicitly creating millions of accounts” for customers without either their knowledge or consent, and then goes through various legal arguments over:
- demonstrating it happened
- showing who did or should have known, and
- what statutes were violated in the whole fiasco.
Both the Board of Directors and former since-ousted CEO John Stumpf should have known since at least 2007, the plaintiffs allege, and failing to do anything about it was in contradiction of both state and federal law.
U.S. District Judge Jon Tigar ruled this week [PDF] that that while certain Wells Fargo execs are off the hook for a few of the allegations under a few slices of law, for the most part the lawsuits stand and can move forward.
“The Court finds that Plaintiffs have plausibly alleged that the Director Defendants made material and misleading statements through their participation in and approval of Wells Fargo’s public filings,” Judge Tigar wrote.
Tigar added, “Plaintiffs have plausibly alleged that the Board and Wells Fargo senior management, and certainly a company CFO, should have known — based on any of a number of ‘red flags’ — that the company’s cross-selling practices were fraudulent.”
And that includes the company’s new replacement CEO, Tim Sloan. The “Court concludes that Plaintiffs adequately allege that Mr. Sloan is responsible for false and misleading information in Wells Fargo SEC filings, including specifically the cross-selling metrics that Plaintiffs allege were artificially inflated,” Tigar concluded.
A spokesman for Wells Fargo told Reuters, “We will continue to advocate strongly for our positions before the courts.”
Suits that stick
This is basically third in a series of combined major legal actions Wells Fargo has faced over these fraudulently opened accounts.
Wells Fargo is tentatively on the hook for $142 million to recompense the customers who were defrauded in the scandal; that settlement is set for a final hearing on Jan. 4.
The company also reached a $185 million settlement with three regulatory bodies: the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the Los Angeles city attorney.
It feels a bit miraculous these days when a lawsuit actually does get anywhere. That’s because Wells Fargo, like nearly every other major company you can think of, includes a clause in its agreement with users that generally prevents wronged customers from filing or joining class-action lawsuits.
Lucky for this set of plaintiffs, they’re not ordinary consumers. The shareholders are a class all their own.
Sloan, the bank’s current CEO, this week told Congress that it was totally fine for his bank’s customers to be prevented from filing suit against the company. His primary reasoning? Why, that Wells Fargo would simply forever be above such chicanery, of course, and there would be nothing that customers would really need to sue over.
(He also testified that he was “deeply sorry” about that whole giant fraud thing.)