Wells Fargo has agreed to pay $1 billion to settle a pension fund-led lawsuit that accused the bank of defrauding shareholders by misleading them over the progress it was making to rectify a slew of scandals.
The Public Employees’ Retirement System of Mississippi, the Louisiana Sheriffs’ Pension & Relief Fund and the state of Rhode Island were among the lead plaintiffs in the lawsuit, filed in June 2020 in U.S. District Court for the Southern District of New York. The final approval hearing for the preliminary settlement is scheduled for September 8.
“Wells Fargo betrayed the trust of Rhode Island pensioners and is now rightly facing consequences because of that,” Rhode Island Treasurer James Diossa said in a statement.
The lawsuit centered on Wells Fargo’s failure to adequately reform its processes in the aftermath of widespread consumer abuses it committed that came to light in September 2016, including fraudulent bank account opening practices. Those led to the U.S. Department of Justice, the Securities and Exchange Commission and other federal and state authorities imposing billions of dollars in penalties.
In February 2018, Wells Fargo agreed to a consent order with the Federal Reserve System to address its board’s oversight failures that had facilitated the abuses and breakdown in compliance. In April 2018, Wells Fargo agreed to consent orders with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency that required Wells Fargo to pay $1 billion in civil penalties and develop a comprehensive plan to identify and remediate present and future consumer harm.
During the class period, which began on February 2, 2018, and ended on March 12, 2020, Wells Fargo “repeatedly reassured investors” that it was developing and implementing the required governance and risk management reforms, was aligned with regulators and was making “meaningful progress toward meeting its obligations under the consent orders,” stated the June 2020 complaint, which claimed this led Wells Fargo’s stock to trade at artificially inflated prices.
The complaint cited a 113-page report released by the U.S. House Committee on Financial Services in 2020 detailing a year-long investigation that concluded that Wells Fargo was not in compliance with the consent orders and was unwilling to take the steps necessary to meet its obligations. According to the complaint, the report described Wells Fargo’s risk management plans as “materially incomplete” and “woefully short” of the Federal Reserve System’s expectations.
Under the preliminary settlement, Wells Fargo denies the claims in the complaint and denies that the settlement class was harmed or suffered any damages as a result of the alleged conduct. The bank agreed to the settlement “solely to eliminate the burden and expense of continued litigation” and on the condition that it may not be construed as an admission of wrongdoing.
The proposed settlement class includes “all persons or entities who purchased or otherwise acquired the common stock of Wells Fargo” during the class period, excluding the defendants, Wells Fargo officers and directors and their family members.
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