Wells Fargo must face shareholder fraud claims over its recovery from
scandals
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[October 01, 2021] By
Jonathan Stempel
NEW YORK (Reuters) -A federal judge on
Thursday rejected Wells Fargo & Co's bid to dismiss a lawsuit claiming
it defrauded shareholders about its ability to rebound from five years
of scandals over its treatment of customers.
The fourth-largest U.S. bank has operated 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 TV interviews,
analyst calls and congressional testimony that the bank was mending its
ways, when regulators actually viewed its progress as "deficient" and
"unacceptable."
U.S. District Judge Gregory Woods in Manhattan said the shareholders
plausibly alleged that some statements by various bank officials,
including former Chief Executive Tim Sloan, were "deliberately or
recklessly false or misleading."
According to shareholders, San Francisco-based Wells Fargo lost more
than $54 billion of market value as the truth was gradually revealed
over a two-year period ending in March 2020.
Woods also dismissed claims against current Chief Executive Charles
Scharf, saying he was not culpable for the challenged claims.
The scandals prompted Warren Buffett's Berkshire Hathaway Inc to shed
nearly 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.
Lawyers for Sloan did not immediately respond to requests for comment.
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![](../images/100121PIX/2021-09-30T215423Z_3_LYNXMPEH8T16T_RTROPTP_4_USA-WARREN-WELLSFARGO_small.JPG)
Wells Fargo logo is seen
in New York City, U.S. January 10, 2017. REUTERS/Stephanie Keith
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The decision is a setback for Wells Fargo's rebound from revelations
including that it opened about 3.5 million accounts without customer
permission, and charged hundreds of thousands of borrowers for auto
insurance they did not need.
Wells Fargo has paid more than $5 billion in fines, and the Fed's $1.95
trillion asset cap restricts the bank's growth.
Sloan stepped down abruptly as chief executive after 2-1/2 years in
March 2019. One 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.
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But he said it would have been "nearly impossible" for Sloan to be
unaware of the regulators' criticisms.
"Based on the facts on the ground, Mr. Sloan knew or, more importantly,
should have known that he was misrepresenting material facts related to
the corporation," Woods wrote.
The shareholders are led by the state of Rhode Island, and pension funds
in Louisiana, Mississippi and Sweden.
Their lawyer Steven Toll said he was pleased they can sue over the "vast
majority of the alleged fraudulent statements."
The case is In re Wells Fargo & Co Securities Litigation, U.S. 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)
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