Wells Fargo Persists in 'Lawless Ways,' Suit Claims

News September 01, 2023 at 02:53 PM
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Wells Fargo continues to act in "lawless ways," including renewing allegedly discriminatory practices in home loan lending, despite having recently paid $4.7 billion to resolve claims over inadequate risk compliance programs and infrastructure, according to a shareholder lawsuit.

Trustees of the Sheet Metal Workers Local No. 33 Pension Fund filed a shareholder derivative lawsuit in U.S. District Court for the Northern District of California in July seeking redress "for Wells Fargo's lawlessness under their stewardship." 

The lawsuit, which seeks damages and other relief, refers to the company as "an unwieldy conglomeration of randomly acquired banking companies merged over the past decades. The result is a behemoth, mega-bank prone to corporate scandal and general lawlessness."

The complaint cited comments from U.S. lawmakers who criticized Wells Fargo for alleged corruption and mismanagement and from the Consumer Financial Protection Bureau's director, who late last year said that "Wells Fargo's rinse-repeat cycle of violating the law has harmed millions of American families."

In December, Wells Fargo paid a record $3.7 billion to resolve legal liability arising from what regulators described as widespread mismanagement of auto loans, mortgages and deposit accounts. The company agreed to the consent order in the case without admitting or denying regulators' allegations.

The alleged mismanagement included repeatedly misapplying loan payments, wrongfully foreclosing on homes and illegally repossessing vehicles, incorrectly assessing fees and interest, charging surprise overdraft fees, and other illegal activity affecting over 16 million consumer accounts, according to the CFPB.

In May, Wells Fargo, while disagreeing with allegations, agreed to pay an additional $1 billion to settle a lawsuit contending the company had misled shareholders about its progress in complying with regulatory consent orders to remedy practices related to alleged mistreatment of customers, the new lawsuit notes.

The company has been subject to multiple regulatory orders and fines over several years covering various allegations. These include, for example, its 2020 agreement to pay $3 billion to resolve potential liability over opening millions of unauthorized bank accounts.

The July complaint alleges Wells Fargo made false and misleading statements about its compliance, risk mitigation, remediation activities and its commitment to non-discriminatory lending, which has led to costly lawsuits, investigations and regulatory proceedings.

"Still today doubt remains whether Wells Fargo is operating lawfully. A Bloomberg report in March 2022 found that Wells Fargo was the only major U.S. lender to reject more African American mortgage refinancing applications than it approved in the 2020 mortgage refinancing boom," the complaint states.

'Law-Breaker'

"Wells Fargo approved 72% of white mortgage applicants in the same period, Bloomberg found. For historical context, in 2012, Wells Fargo promised not to discriminate against qualified African American mortgage borrowers in a $234.3 million settlement with the U.S. Department of Justice … a promise that Wells Fargo has not kept.

"Wells Fargo is a law-breaker and so too are defendants (current or former directors or officers) for not stopping Wells Fargo's serial violations of law. Accordingly, plaintiffs bring this action to hold defendants accountable for breaching their fiduciary duties," the complaint says.

Neither Wells Fargo nor its board adopted internal controls and risk infrastructure despite agreements made in consent orders to do so, according to the suit, which alleges, "In the face of red flags, defendants also did not stop Wells Fargo's violations of law across large and varied parts of its business."

The complaint cites what it calls Wells Fargo's "long history of corruption and scandal" and alleges several legal and fiduciary breaches. 

It says critics, including some lawmakers, consider the bank "too big to govern and operate lawfully. The remedy, these Congressional critics say, is to dismantle Wells Fargo to protect consumers from harm. … Even a cursory review of the record reveals that Wells Fargo abuses its customer accounts, depositors, military service members, and qualified under-represented mortgage loan applicants and borrowers across multiple product lines."

The complaint claims Wells Fargo and the other defendants breached their fiduciary duty, engaged in gross mismanagement, abused their ability to control and influence the bank, wasted corporate assets and unjustly enriched themselves to the company's detriment.

Wells Fargo had no comment, a spokesperson said Friday.

Other Lawsuit Dismissed

Separately, a federal district judge in San Francisco last month granted Wells Fargo's motion to dismiss a securities fraud lawsuit accusing the bank of promoting its diversity efforts while conducting "sham interviews" of diverse candidates when the positions had been filled already.

While the allegations were sufficient to draw the inference that some sham interviews likely occurred, they fell short of the inference that sham interviews took place during the class period, the judge also wrote. Therefore, the judge found, the shareholders didn't sufficiently plead that Wells Fargo's statements about its diversity hiring initiative were false.

This case followed a New York Times article reporting Wells Fargo management regularly engaged in "fake" interviews with job candidates who were diverse by racial, gender, sexual orientation or other statuses. The company has denied such allegations. The Times has also reported that federal prosecutors opened a criminal inquiry into Wells Fargo's hiring practices.

Wells Fargo argued the shareholder plaintiffs failed to plausibly claim that the allegedly misleading statements were false, since the shareholders didn't contend facts showing the bank didn't implement its diversity requirement or that the requirement wasn't as described. 

Meanwhile, Bloomberg reported last month that a Florida pension fund wants Wells Fargo to supply files about a possible criminal investigation into whether the company illegally engaged in the fake interviews to meet its own diversity guidelines.

That request came in a Delaware Chancery Court lawsuit stemming from the New York Times reports, Bloomberg noted.

(Credit: Bloomberg)

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