Wells Fargo has agreed to pay $1 billion to settle a class-action lawsuit brought on by shareholders who had accused the lender of overstating the progress of reforms initiated after the 2016 fake-accounts scandal.
The settlement was filed late Monday in federal court in Manhattan, where litigation had been in progress for three years. If it secures the judge’s approval, it would be among the 20 largest securities class-action deals on record, according to plaintiffs.
“This agreement resolves a consolidated securities class-action lawsuit involving the company and several former executives and a director, who have not been with the company for several years,” a Wells Fargo spokesman said. “While we disagree with the allegations in this case, we are pleased to have resolved this matter.”
It’s the latest penalty to emerge from the years-long scandal. In 2016, Wells Fargo acknowledged opening millions of accounts that customers didn’t ask for. The bank fired more than 5,000 employees who had opened fake accounts to win bonuses or keep their jobs, with some customers wrongly charged overdraft fees and dinged on their credit scores.
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The Federal Reserve imposed a series of consent orders in 2018 that disallowed the bank from growing larger through mergers and acquisitions, along with other strictures linked to corporate governance improvement plans.
Some of the bank’s shareholders, including several pension administrators, later accused Wells Fargo of misleading them about the extent of its compliance with those consent orders. They alleged the bank moved slower to address its problems than had been suggested publicly, harming investors when the bank’s stock price later declined.
The shareholders lawsuit centers on public statements and regulatory filings in which the bank touted its progress in complying with the consent orders between 2018 and 2020.
“In reality, however ― and unbeknownst to the investing public ― Wells Fargo was far from complying with regulators’ directive, including repeatedly submitting insufficiently developed and inadequate remediation plans, struggling to meet deadlines, and failing to implement meaningful reforms,” the plaintiffs wrote in a legal complaint initially filed in June 2020.
The bank’s stock price fell more than 10 percent over two days following the release of a report regarding its compliance with the consent orders, and plunged again when members of the House Financial Services Committee requested a federal investigation. Those falling share prices coincided with broader stock market disruption caused by the onset of the coronavirus pandemic.
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The class-action lawsuit was led by pension administrators in Rhode Island and Mississippi, who said their holdings were affected by the bank’s misleading statements.
“The pension fund lost money because of their lies, so we’re holding them accountable,” Rhode Island General Treasurer James Diossa said in an interview Tuesday.
Share this articleShareHe added that he hoped the settlement would cause the bank to be more careful about future statements to investors.
“I strongly believe that this is an important case historically, too, because it’s going to help shape the next years to come for Wells Fargo and their behavior,” Diossa said.
Laura Posner, an attorney with the law firm Cohen Milstein, which represented the plaintiffs, called the settlement “quite impressive” in terms of what the plaintiffs thought realistic damages were. “More broadly, it is hopefully a way of deterring … other companies from engaging in fraud,” Posner said.
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It’s the latest in a string of payouts for Wells Fargo. Last year, the bank was ordered by the Consumer Financial Protection Bureau to pay $3.7 billion to resolve claims that it bungled borrowers’ auto and mortgage loans. It separately agreed to resolve a different class-action suit for $300 million that claimed it improperly charged hundreds of thousands of customers for car insurance they didn’t need.
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