May 12, 2021

Wells Fargo must face a proposed class action accusing it of wrongly including proprietary investment options in its employee 401(k) plan and engaging in prohibited party-in-interest and self-dealing transactions, a Minnesota federal judge ruled Wednesday.

U.S. District Judge Donovan Frank denied Wells Fargo's motion to dismiss Yvonne Becker's Employee Retirement Income Security Act challenge to the plan, which had roughly 340,000 participants and $40 billion in assets at the end of 2018, making it among the nation's largest.

Becker's March 2020 suit alleged Wells Fargo and three affiliated entities kept a variety of proprietary funds as investment options in the plan despite having access to better-performing, cheaper nonproprietary options.

"The complaint further alleges that these options were chosen to benefit defendants at the expense of plan participants," Judge Frank said. "The court finds that these allegations are sufficient to infer that the decision-making process, by which the fiduciary defendants selected and managed the Wells Fargo funds, was tainted by breach of their fiduciary duties."

. . .

Becker's allegations that Wells Fargo caused plan participants to lose hundreds of millions of dollars went beyond blanket assertions of misconduct, the court found.

Wells Fargo essentially offered certain self-affiliated investments in the 401(k) plan to create "seed money" for newer proprietary options, not because they were in the participants' best interest, Becker alleged.

The plan purchased interests in some Wells Fargo funds, which improved the funds' viability and, in turn, allowed some executives to earn bigger paychecks, Becker claimed.

. . .

Becker is represented by Michelle Yau, Jamie Bowers, Mary Bortscheller and Scott Lempert of Cohen Milstein Sellers & Toll PLLC; and by Carolyn Anderson, Charles Toomajian, Ian McFarland and June Hoidal of Zimmerman Reed LLP.

The complete article can be viewed here.