On September 30, 2021, the Honorable Gregory H. Woods of the United States District Court for the Southern District of New York denied in most respects Defendants’ motion to dismiss In re Wells Fargo & Company Securities Litigation, No. 1:20-cv-04494-GHW, holding that Plaintiffs had plausibly alleged that the vast majority of Defendants’ challenged statements were false and misleading or omitted material facts, and that the case could proceed against Defendants Wells Fargo; Timothy J. Sloan, former CEO and President; John R. Shrewsberry, former Senior Executive Vice President and CFO; Allen Parker, former Senior Executive Vice President and General Counsel and interim CEO; and Elizabeth Duke, former director on Wells Fargo’s Board and Chairwoman of the Board.
Plaintiffs allege that, in the wake of a widespread consumer banking scandal from 2016 - 2018, Wells Fargo misrepresented to investors that it had improved its governance and oversight structures in compliance with three regulatory consent orders (the “2018 Consent Orders”) issued by the Federal Reserve Board (the “FRB”), the Office of the Comptroller of the Currency (the “OCC”) and the Consumer Financial Protection Bureau (the “CFPB”) to ensure that there would be no recurrence of consumer abuses and shareholder trust that had plagued the bank. Wells Fargo shareholders incurred significant losses after the U.S. House of Representatives Financial Services Committee issued a report on March 4, 2020 revealing that, in reality, Wells Fargo has “clearly demonstrated an unwillingness and inability to stop harming its customers” and that its remediation plans fell “woefully short” of regulators’ expectations.
Judge Woods ruled that Defendants misled investors by claiming they had shared all relevant information with investors, the Bank was in agreement with the regulators, and the Bank was in advanced stages of the consent decrees. As the Court succinctly stated, in light of the fact that the Bank had not even submitted an acceptable plan to regulators at the time of the challenged statements, “[p]lainly, there was no basis for [Defendant’s] statements that the Bank was ‘largely there’ and that the Bank and the Regulators had reached a ‘meeting of the minds.’” The Court also found that Plaintiffs adequately pled scienter – or the requisite mental state – finding that the Defendants were well aware of the lack of Wells Fargo’s progress on the consent decrees because they were in direct communication with the regulators and were directly responsible for Wells Fargo’s compliance programs. Finally, the Court also upheld the Section 20(a) control person claims against certain of the defendants.
On August 29, 2020, the Court appointed Lead Plaintiffs, including Cohen Milstein clients, the Public Employees’ Retirement System of Mississippi and the State of Rhode Island, Office of the General Treasurer, and approved Lead Plaintiffs’ selection of Lead Counsel for the Class, including Cohen Milstein.
Wells Fargo is a financial services company that provides retail, commercial, and corporate banking services. In September 2016, investors learned that Wells Fargo had engaged in widespread consumer abuses, including fraudulent bank account opening practices. Exposure of these practices drew intense regulatory scrutiny and resulted in the U.S. Department of Justice, SEC, and other federal and state authorities collectively levying billions of dollars in financial penalties on Wells Fargo. On February 2, 2018, the first day of the Class Period, the Company agreed to a Consent Order (“Federal Reserve Consent Order”) with the Federal Reserve System (“FRS”) to address the oversight failures of Wells Fargo’s Board of Directors that had facilitated widespread abuses and compliance breakdowns. That day, the Company announced its confidence in its ability to satisfy the Federal Reserve Consent Order’s requirements.
Soon after, on April 20, 2018, Wells Fargo entered into consent orders with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency (together with the Federal Reserve Consent Order, the “Consent Orders”). The Consent Orders required payment of $1 billion in civil penalties and development of a comprehensive plan to identify and remediate present and future consumer harm.
Throughout the Class Period, Defendants repeatedly reassured investors that the Company 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. As a result of Defendants’ false and misleading statements and omissions, shares of Wells Fargo common stock traded at artificially inflated prices throughout the Class Period.
The truth began to be revealed on March 4, 2020, after the market closed, when the House Financial Services Committee released a 113-page report (the “House Report”) detailing its yearlong investigation into Wells Fargo and concluding that Wells Fargo was not in compliance with the Consent Orders and was unwilling to take the steps necessary to satisfy its obligations. The House Report described Wells Fargo’s risk management plans as “materially incomplete” and “woefully short” of the FRS’s expectations, and the House Report revealed that in March 2019, the FRS had sent Wells Fargo a letter stating that the Company’s remediation plans “remain materially incomplete” and were “riddled with errors and discrepancies.” On this news, Wells Fargo shares declined from $41.40 per share on March 4, 2020 to $38.90 on March 5, 2020, on heavy trading volume.
Then, on March 10, 2020, Defendant Scharf testified before the House Financial Services Committee and finally acknowledged that Wells Fargo “ha[s] not yet done what is necessary to address [its] shortcomings” and that “the [C]ompany’s leadership failed its stakeholders” and “we did not have the appropriate controls in place across the [C]ompany.” Additionally, that day, House Financial Services Committee Chairwoman Maxine Waters requested that the DOJ review 2019 testimony by Defendant Sloan to investigate whether he had lied to Congress in violation of federal laws. As a result of these disclosures, Wells Fargo shares declined from $35.08 per share on March 10, 2020 to $32.33 on March 11, 2020 and then down to $27.20 on March 12, 2020 on heavy trading volume.
As a result of Defendants’ false and misleading statements, and the precipitous decline in the value of Wells Fargo common stock as the truth was revealed, the putative class members suffered significant losses and damages.
The original case was named: Adam Perry v. Wells Fargo & Company, et al., Case No. 1:20-cv-04494, United States District Court, Southern District of New York.
The case is named: In re Wells Fargo & Company Securities Litigation, Case No. 1:20-cv-04494-GHW, United States District Court, Southern District of New York.