Six law firms each asked a California federal judge Friday to name them lead counsel in a proposed class action stemming from two Wells Fargo stock drops in March after a U.S. House of Representatives Financial Services Committee report castigated the bank over its numerous oversight failures.
The July securities suit followed the stock price falling twice in March, once after the House committee's March 4 report, which said Wells Fargo "continues to struggle to implement effective risk management and remediation programs."
The other came the day after claims that recently resigned Wells Fargo CEO Timothy J. Sloan misled House lawmakers at a hearing a year earlier by saying the bank was in compliance with a 2018 order over remediation plans to rectify a series of scandals since 2016.
Vying to represent shareholders, Bernstein Litowitz Berger & Grossman LLP and Cohen Milstein Sellers & Toll PLLC are seeking lead counsel status, with their four clients — institutional investors Handelsbanken Fonder AB, the Louisiana Sheriffs' Pension & Relief Fund, Employees' Retirement System of Rhode Island, and Public Employees' Retirement System of Mississippi — seeking lead plaintiffs status, having lost a collective $39.7 million from the Wells Fargo stock drops.
In 2016, Wells Fargo had agreed to consent orders with the Office of the Comptroller of the Currency and the Consumer Fraud Protection Bureau over claims that its employees opened millions of unauthorized, fraudulent customer accounts.
The bank also reached a consent order with the Federal Reserve in February 2018, imposing a $2 trillion asset size cap. It signed two more orders with the OCC and the CFPB in April 2018 to resolve claims of harmful practices in its auto lending and mortgage divisions.
The consent orders required Wells Fargo to comply with federal directives on its governance and risk management policies and required the bank to develop a comprehensive plan for identifying and remediating present and future consumer harm.
To repair its tarnished reputation, Wells Fargo touted its corporate reforms to comply with the consent orders, but in reality, the bank submitted unfinished or inadequate plans, failing to implement meaningful reforms, according to the House committee report.
"Wells Fargo's failure to date to establish effective mechanisms for identifying and mitigating risks within the company after reaching settlements with its regulators leaves consumers exposed to countless potential abuses that may be unknown to the firm's management, board, regulators, or the public," the House committee's March report said.
On this news, Wells Fargo's stock price fell more than 10% over two trading days, from $41.40 per share to $37.09 per share, according to the complaint.
A week later, Financial Services Committee Chairwoman Rep. Maxine Waters requested that the U.S. Department of Justice investigate Sloan for allegedly lying in his public testimony a year earlier about the bank's compliance with the consent orders.
On this news, the share price fell more than 20% over two trading days, from $34.63 per share to $27.20 per share, according to the complaint.
In the suit, investors allege that Wells Fargo and executives Sloan, Charles W. Scharf, C. Allen Parker and John R. Shrewsberry falsely claimed the bank had improved its governance and oversight structures, that the House committee report revealed it had not, and that investors lost money when the stock price fell twice.
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