Despite $1B Deal, Wells Fargo Still Faces Storm Of Litigation
Despite $1B Deal, Wells Fargo Still Faces Storm Of Litigation
Written by: Hannah Albarazi
Re-posted from Law360 (May 16, 2023, 10:43 PM EDT) — Wells Fargo may have agreed to pay a whopping $1 billion in cash to resolve investor claims that it overstated its progress in fixing internal controls and compliance problems, but the scandal-plagued bank still faces a mountain of ongoing regulatory investigations and litigation.
The $1 billion deal, unveiled in court documents late Monday, resolves a consolidated securities class action against Wells Fargo and several former executives and a director “who have not been with the company for several years,” the company stressed in a statement provided to Law360 on Tuesday.
The bank said it disagrees with the allegations in the case but is “pleased to have resolved this matter.”
If approved by a New York federal judge, the $1 billion settlement would resolve allegations that the banking behemoth misled shareholders about how far along it was in getting out from under consent orders tied to a series of scandals, including creating accounts for customers without their consent, charging unwarranted overdraft fees, improperly denying mortgage modifications and unlawfully repossessing vehicles of customers with auto loans.
Steven J. Toll, managing partner at Cohen Milstein Sellers & Toll PLLC and counsel for the plaintiffs in the case, said in a statement Tuesday that if approved, “this settlement will help compensate hundreds of thousands of investors — state employees, nurses, teachers, police, firefighters and others — whose critical retirement savings were impacted by Wells Fargo’s fraudulent business practices.”
But the bank remains entangled in a slew of other regulatory and litigation matters and is still subject to an asset cap by the Federal Reserve, which prohibits the San Francisco-based bank from growing beyond $1.95 trillion.
Among other matters, a shareholder derivative suit against the bank in California state court, over the same compliance with consent order issues at the heart of the federal settlement, remains pending.
Here, Law360 spotlights some of the legal battles the bank is still fighting.
Hiring Practices Scrutinized
Federal agencies, including the U.S. Department of Justice and the U.S. Securities and Exchange Commission, have launched inquiries or investigations into Wells Fargo’s hiring practices related to diversity.
The bank has been hit with a proposed securities fraud class action and shareholder derivative actions in California federal court alleging that Wells Fargo and some of its executive officers made false or misleading statements about the bank’s hiring practices related to diversity.
In April, Wells Fargo sought to nix a suit alleging it deceived investors with false promises to interview diverse job candidates. At the time, the bank said the proposed class hadn’t proven that company leadership knew about “isolated” incidents in which fake interviews were allegedly conducted to satisfy internal diversity guidelines.
The case is In Re: Wells Fargo & Co. Hiring Practices Derivative Litigation, case number 3:22-cv-05173, in the U.S. District Court for the Northern District of California.
Recordkeeping Probed
In February, Wells Fargo disclosed that the SEC and the U.S. Commodity Futures Trading Commission were looking into bank employees potentially communicating via “unapproved” electronic messaging channels.
The regulators’ investigation is part of an industrywide crackdown on off-channel communications via personal messaging applications and personal email accounts.
It’s unknown what sort of penalties Wells Fargo could face in the investigations, but other big banks have paid enormous sums.
Last year, a slew of Wall Street heavyweights agreed to pay a combined $2 billion in civil penalties for recordkeeping failures related to their employees’ use of personal messaging apps to discuss business matters, with Bank of America agreeing to pay $225 million and units of Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS agreeing to pay $200 million each in penalties.
Seminole Tribe Trustee Litigation
Wells Fargo has also been engaged in litigation since 2016 with the Seminole Tribe of Florida.
The tribe sued Wells Fargo in Florida state court on allegations that the bank, as trustee, charged excess and improper fees in connection with the administration of a $1.4 billion trust fund.
The tribe further alleges that Wells Fargo didn’t prudently invest the assets of the trust.
An amended complaint later added three individual beneficiaries as plaintiffs and removed the tribe as a party.
While Wells Fargo sought to remove the case to federal court, it was remanded to state court, where it remains pending.
The case is Lewis Gopher Jr. et al. v. Wells Fargo Bank NA et al., case number CACE16000592, in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida.
RMBS Trustee Litigation
Wells Fargo is also still navigating a collection of lawsuits brought by entities in New York alleging that the bank, as trustee for residential mortgage-backed securities trusts, dropped the ball during the 2008 financial crisis and failed to protect them from billions of dollars in losses.
The bank announced in 2018 that it would pay $43 million to settle two class actions brought by institutional investors, and in 2021, the bank also reached a settlement ending a suit brought by the National Credit Union Administration.
Other suits with similar allegations against the bank, including one brought by Germany’s Commerzbank AG, remain pending in the U.S. Court of Appeals for the Second Circuit.
Similar residential mortgage-backed securities lawsuits against Wells Fargo brought by other entities also remain pending in New York state court.
The case is Commerzbank AG v. Wells Fargo Bank N.A., case number 22-1879, in the U.S. Court of Appeals for the Second Circuit.
Discriminatory Lending Claims
More recently, the bank has been hit with a lawsuit brought by a trio of Georgia counties in Georgia federal court alleging the bank engaged in a long-running “scheme” in which it preyed on Black and Latino borrowers with discriminatory subprime mortgage lending, servicing and foreclosure practices.
The counties say that beginning in the early 2000s the bank engaged in “equity stripping” by steering Black and Latino borrowers into unaffordable loans, charging excessive fees when they defaulted and taking away their homes via foreclosure, resulting in the equity they built up being wiped out.
The counties say the bank’s alleged tactics harmed minority borrowers and their communities while simultaneously eroding county tax bases and straining county budgets left to deal with the resulting blight.
Wells Fargo, for its part, argued that foreclosures in and of themselves aren’t evidence of discrimination.
In March, a federal judge refused to dismiss Wells Fargo and several subsidiaries from the suit, holding that the counties’ latest complaint established the timeliness of their claims.
The judge said the counties had pointed to foreclosures arising from “predatory” interest rates on home loans and to heat maps that purportedly show “‘minority borrowers and neighborhoods have suffered a disproportionate number of foreclosures compared to white borrowers.'”
The case is Fulton County et al. v. Wells Fargo & Co. et al., case number 1:21-cv-01800, in the U.S. District Court for the Northern District of Georgia.
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