October 1, 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 email.
Sloan’s lawyer Josh Cohen said in an email on Friday that his client’s statements were truthful, and that Sloan “worked tirelessly to bring Wells Fargo into compliance with consent orders and regulatory demands.”
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.
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)
Source Link Wells Fargo must face shareholder fraud claims over its recovery from scandals
