Wells Fargo & Company’s (WFC - Free Report) legal troubles stemming from the sales scandal continue to mount. Barely a few days after the bank was hit with a $2.6B class action by former employees, the company faces a shareholder class action lawsuit. The latest lawsuit accuses the bank of misleading the investors regarding the financial condition of the company and success of its sales strategy.
On Sep 26, law firm Robbins Geller Rudman & Dowd LLP announced that a class action has been launched on behalf of all shareholders of Wells Fargo who bought the company’s stock between Feb 26, 2014 and Sep 15, 2016.
The complaint filed in San Francisco federal court targeted ‘Cross-selling’, which has been Wells Fargo’s key strength in the recent years and was at the heart of the regulators’ claim of “widespread illegal practice” of the bank.
Apart from the bank, defendants include John Stumpf – Chairman and CEO of Wells Fargo, Chief Financial Officer John Shrewsberry and Carrie L. Tolsted, the now-retired executive who headed company’s community banking unit.
The lawsuit alleged that Wells Fargo failed to reveal that its cross-selling efforts to retail customers were not aimed to meet customers’ need and satisfaction but were rather “the product of a carefully designed system”. These efforts resulted in fraudulently opening millions of deposit and credit card accounts without customers’ knowledge in order to drive fee income for Wells Fargo and incentives for its employees as well as defendants.
Wells Fargo is also accused of failing to disclose that an ongoing internal probe had determined that for years employees were engaged in the illegal practice of opening accounts that finally resulted in over 5,000 employee terminations.
The lawsuit claimed, “Stumpf concealed the fact that the Company had made substantial findings of the unlawful activity and actual fraud in its Community Banking segment as part of its investigation, which not only exposed millions of customers to unlawful fees and potential identity theft, but put the Company in the crosshairs of federal investigations.”
As a result of false statements and omission of material information by Wells Fargo, the company traded at inflated price. Investors suffered losses as shares plunged following the bank’s $190 million settlement on Sep 8 to resolve regulators’ claims of illegally opening millions of unauthorized accounts.
According to the complaint, “Between September 8, 2016 and September 16, 2016, the Company’s stock price declined 9%, from a close of $49.90 per share on September 8, 2016 to a close of $45.43 per share on September 16, 2016, as information about defendants’ conduct and its impact on Wells Fargo’s operations reached the market, inflicting billions of dollars of harm on plaintiff and other Wells Fargo shareholders.”
While no amount has been specified, the lawsuit is seeking damages including interest.
Among other legal woes tied with the scam, recently, the company’s board has been slammed with a lawsuit alleging breach of duty to investors. Also, three customers in Utah have filed a lawsuit against the bank for fraud, breach of contract and invasion of privacy.
Last week, Stumpf apologized for unethical sales practices and specifically stated that there was no “no orchestrated effort or scheme” by the bank to promote the wrongful sales practices when he testified before the U.S. Senate Banking Committee. Notably, committee members including Democrat Elizabeth Warren demanded Stumpf’s resignation.
The apology from the CEO, however, did little to calm the public and political outrage against Wells Fargo – the once largest bank of the nation that earned admiration for steering well through the onslaughts of the financial crisis.
Since the announcement of the settlement on Sep 8, shares of Wells Fargo lost around 10%. Year-to-date, the company’s shares fell more than 17%, compared with around 5% decrease in the KBW Nasdaq Bank Index.
Wells Fargo currently carries a Zacks Rank #4 (Sell).
Stocks Worth Considering
Banks that are worth a look include Comerica Inc. (CMA - Free Report) , State Street Corp. (STT - Free Report) and Enterprise Financial Services Corp. (EFSC - Free Report) .
Comerica currently carries a Zacks Rank #2 (Buy) and has been witnessing upward estimate revisions. Over the past 60 days, the Zacks Consensus Estimate for 2016 advanced nearly 2% to $2.72 per share. Also, the stock gained over 9% year to date.
Currently carrying a Zacks Rank #2, State Street has been experiencing upward estimate revisions over the past 60 days. The Zacks Consensus Estimate for 2016 advanced more than 2% to $5.03 per share. Year to date, the shares of the company gained around 6%.
Enterprise Financial, sporting a Zacks Rank #1 (Strong Buy), has been witnessing upward estimate revisions over the last 60 days. The Zacks Consensus Estimate for 2016 advanced 6% to $2.30 per share. Year to date, the company’s share price increased over 10%.You can see the complete list of today’s Zacks #1 Rank stocks here.
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