NEW YORK (Businesshala) – A federal judge on Thursday rejected Wells Fargo & Co’s bid that it claimed deceived shareholders about its ability to rebound from five years of scandals over its dealings with customers. .
The fourth-largest US bank has acted since 2018 under consent orders from the Federal Reserve and two other US financial regulators to improve governance and oversight, as well as the Fed limiting Wells Fargo’s assets.
Shareholders said bank executives falsely claimed in TV interviews, analyst calls and congressional testimony that the bank was changing its ways, when regulators actually saw its progress as “lacking” and “unacceptable.”
US District Judge Gregory Woods in Manhattan said shareholders alleged that certain statements from various bank executives, including former chief executive Tim Sloan, were “deliberately or recklessly false or misleading.”
According to shareholders, San Francisco-based Wells Fargo lost more than $54 billion of market value as the truth slowly emerged over the two-year period ending in March 2020.
Woods also dismissed claims against current chief executive Charles Scharf, saying he was not guilty of the claims challenged.
The scandals prompted Warren Buffett’s Berkshire Hathaway Inc. to drop its roughly 10% stake in the bank.
“We will continue to vigorously defend the lawsuit and strongly disagree with the claims,” Wells Fargo said in an email.
Sloan’s attorney, Josh Cohen, said in an email Friday that his client’s statements were true, and that Sloan “worked tirelessly to bring Wells Fargo into compliance with consent orders and regulatory demands.”
The decision comes as a blow to a rebound from Wells Fargo’s disclosure that it opened nearly 3.5 million accounts without customers’ permission, and charged hundreds of thousands of borrowers for auto insurance they didn’t need.
Wells Fargo has paid more than $5 billion in fines, and the Fed’s $1.95 trillion asset cap restricts the bank’s growth.
Sloan abruptly stepped down as chief executive in March 2019 after 2-1/2 years. A year later, Wells Fargo canceled a $15 million bonus for him.
In his 61-page decision, Woods did not decide whether bank officials intended to defraud shareholders.
But he said it would be “nearly impossible” for Sloan to be unaware of regulators’ criticisms.
“Based on the facts on the ground, Mr. Sloan knew or, more importantly, should have known that he was misrepresenting material facts concerning the corporation,” Woods wrote.
Shareholders are led by the state of Rhode Island and pension funds in Louisiana, Mississippi and Sweden.
His attorney, Steven Tolle, said he was glad they could sue “the vast majority of the alleged fraudulent statements.”
The case is in Ray Wells Fargo & Company Securities Litigation, US District Court, Southern District of New York, No. 20-04494.