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Wells Fargo's (WFC) Bid to Dismiss Shareholder Lawsuit Rejected
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Wells Fargo & Company’s (WFC - Free Report) request to dismiss a shareholder lawsuit that claimed that the company defrauded shareholders by painting a favorable picture about its compliance with U.S. regulators’ consent orders has been rejected.
U.S. district judge Gregory Woods in Manhattan said the shareholders had plausibly alleged that certain comments made by various bank officials, including former chief executive Tim Sloan, were "deliberately or recklessly false or misleading." The shareholders claim that bank officials falsely reported that the company was making significant headway with its corrective actions to rebound from five years of scandals over its treatment of customers. But in reality, regulators had actually remarked that such progress was "deficient" and "unacceptable."
The judge remarked, "based on the facts on the ground, Mr. Sloan knew or, more importantly, should have known that he was misrepresenting material facts related to the corporation”. The district judge, however, freed the current chief executive Charles Scharf from the suit and dismissed claims saying that he was not at fault.
Per shareholders, the fourth-largest bank lost more than $54 billion of market value as the reality was gradually revealed spanning over a two-year period ended March 2020.
The decision is a hindrance to Wells Fargo's recovery path from its scandals that include the opening of about 3.5 million accounts without customer knowledge and charging borrowers for unrequired auto insurance.
Since these scandals surfaced, the company has paid more than $5 billion in fines and continued to operate under Fed’s $1.95-trillion asset cap that restricts the bank's growth.
In fact, recently, the Department of Justice slapped the firm with a $37-million fine to settle U.S. government claims of deceitfully overcharging commercial clients on foreign exchange (FX) services.
Specifically, the Department of Justice asserted that from 2010 to 2017, Wells Fargo’s FX sales specialists duped 771 customers (several were small- and medium-sized businesses as well as federally-insured financial institutions) by systematically charging them higher mark-ups on FX transactions than the representative cost, and obscuring those overcharges via various distortions and underhanded practices. (Read more: Wells Fargo to Pay $37.3M to Settle Forex Lawsuit)
Since legal hassles have been snowballing on the company, it has undertaken numerous initiatives and achieved regulatory milestones. Specifically, the company has bifurcated three business groups into five, and created four Enterprise Functions to propel greater oversight and transparency. It has also launched an enterprise-wide risk and control self-assessment program to evaluate operational risks and controls as well as design appropriate mitigating controls.
The company’s 2016 consent order, which was issued by the Consumer Financial Protection Bureau in relation to the bank’s retail sales practices, was terminated earlier this month.
This January, the Office of the Comptroller of the Currency (“OCC”) terminated a 2015 consent order related to the Wall Street giant’s Bank Secrecy Act/Anti-Money Laundering compliance program. In May 2020, the OCC upgraded its Community Reinvestment Act rating to outstanding.
Shares of the company have gained 17.1% over the past six months compared with 8.2% growth recorded by the industry.
Several other banks continue to encounter legal hassles and are charged with huge sums of money for business malpractices.
Interactive Brokers Group, Inc. (IBKR - Free Report) has agreed to pay $1.75 million as penalty for failing to adequately prepare its electronic trading system before the historic plunge in crude oil prices last year. The U.S. futures regulator alleged that when oil prices plunged below zero on Apr 20, 2020, the negative price was not displayed to the brokerage firm’s customers, who were unable to place limit orders to buy or sell.
Charles Schwab (SCHW - Free Report) has been slapped with a class-action lawsuit over violations of fiduciary duty by placing its own interest before the protection of clients through the robo-adviser SIP cash sweep program. The case, filed in the U.S. District Court in Northern California on Friday, also accused the company of breach of contract and violation of state laws.
Mitsubishi UFJ Financial Group’s (MUFG - Free Report) U.S. banking unit, MUFG Union Bank NA, has been slapped with a cease-and-desist order by the OCC over unsound technological practices.
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Wells Fargo's (WFC) Bid to Dismiss Shareholder Lawsuit Rejected
Wells Fargo & Company’s (WFC - Free Report) request to dismiss a shareholder lawsuit that claimed that the company defrauded shareholders by painting a favorable picture about its compliance with U.S. regulators’ consent orders has been rejected.
U.S. district judge Gregory Woods in Manhattan said the shareholders had plausibly alleged that certain comments made by various bank officials, including former chief executive Tim Sloan, were "deliberately or recklessly false or misleading." The shareholders claim that bank officials falsely reported that the company was making significant headway with its corrective actions to rebound from five years of scandals over its treatment of customers. But in reality, regulators had actually remarked that such progress was "deficient" and "unacceptable."
The judge remarked, "based on the facts on the ground, Mr. Sloan knew or, more importantly, should have known that he was misrepresenting material facts related to the corporation”. The district judge, however, freed the current chief executive Charles Scharf from the suit and dismissed claims saying that he was not at fault.
Per shareholders, the fourth-largest bank lost more than $54 billion of market value as the reality was gradually revealed spanning over a two-year period ended March 2020.
The decision is a hindrance to Wells Fargo's recovery path from its scandals that include the opening of about 3.5 million accounts without customer knowledge and charging borrowers for unrequired auto insurance.
Since these scandals surfaced, the company has paid more than $5 billion in fines and continued to operate under Fed’s $1.95-trillion asset cap that restricts the bank's growth.
In fact, recently, the Department of Justice slapped the firm with a $37-million fine to settle U.S. government claims of deceitfully overcharging commercial clients on foreign exchange (FX) services.
Specifically, the Department of Justice asserted that from 2010 to 2017, Wells Fargo’s FX sales specialists duped 771 customers (several were small- and medium-sized businesses as well as federally-insured financial institutions) by systematically charging them higher mark-ups on FX transactions than the representative cost, and obscuring those overcharges via various distortions and underhanded practices. (Read more: Wells Fargo to Pay $37.3M to Settle Forex Lawsuit)
Since legal hassles have been snowballing on the company, it has undertaken numerous initiatives and achieved regulatory milestones. Specifically, the company has bifurcated three business groups into five, and created four Enterprise Functions to propel greater oversight and transparency. It has also launched an enterprise-wide risk and control self-assessment program to evaluate operational risks and controls as well as design appropriate mitigating controls.
The company’s 2016 consent order, which was issued by the Consumer Financial Protection Bureau in relation to the bank’s retail sales practices, was terminated earlier this month.
This January, the Office of the Comptroller of the Currency (“OCC”) terminated a 2015 consent order related to the Wall Street giant’s Bank Secrecy Act/Anti-Money Laundering compliance program. In May 2020, the OCC upgraded its Community Reinvestment Act rating to outstanding.
Shares of the company have gained 17.1% over the past six months compared with 8.2% growth recorded by the industry.
Wells Fargo currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Several other banks continue to encounter legal hassles and are charged with huge sums of money for business malpractices.
Interactive Brokers Group, Inc. (IBKR - Free Report) has agreed to pay $1.75 million as penalty for failing to adequately prepare its electronic trading system before the historic plunge in crude oil prices last year. The U.S. futures regulator alleged that when oil prices plunged below zero on Apr 20, 2020, the negative price was not displayed to the brokerage firm’s customers, who were unable to place limit orders to buy or sell.
Charles Schwab (SCHW - Free Report) has been slapped with a class-action lawsuit over violations of fiduciary duty by placing its own interest before the protection of clients through the robo-adviser SIP cash sweep program. The case, filed in the U.S. District Court in Northern California on Friday, also accused the company of breach of contract and violation of state laws.
Mitsubishi UFJ Financial Group’s (MUFG - Free Report) U.S. banking unit, MUFG Union Bank NA, has been slapped with a cease-and-desist order by the OCC over unsound technological practices.