Judge Questions Wells Fargo Executives' Knowledge of Scandal
If your company's problems make the news, remember, judges read newspapers, too.
It has turned out to be an ongoing problem for Wells Fargo, still reeling from a scandal exposed by the Los Angeles Times in December 2013. The newspaper told the story about how the bank pressured employees to create fake accounts to generate fees, resulting in more than $300 million in penalties against the company to date.
U.S. District Judge Jon Tigar, who read the article, was unimpressed by arguments from the bank's attorneys about it. In a motion to dismiss a shareholder class action, Wells Fargo attorney Brendan Cullen tried to downplay the widespread nature of the scandal.
"I find it very difficult to read this article and conclude the conduct was geographically limited and not about the unauthorized opening of accounts," Tigar said.
The story goes that for years Wells Fargo pushed employees to the breaking point to sign up new accounts. They were threatened with termination if they fell behind the curve, the Times said.
To meet quotas, the workers opened fake accounts, ordered credit cards without customer's permission and forged customers' signatures. In one case, employees talked a homeless woman into opening six accounts.
Government and civil actions followed, and according to the class-action, the bank paid $185 million to settle misconduct claims in September 2016 and lost $19 billion in stock value within the next eight days. According to a Forbes report, the bank could lose $212 billion in deposits and $8 billion in revenue over the next 18 months from the fallout.
The shareholders allege the company's board of directors breached its fiduciary duty by failing to stop the scandal. They knew about it at least as early as the Times article, says plaintiffs' attorney Richard Heimann.
It's Not Over
At the hearing, the judge seemed to agree. He doubted that bank Chairman John Stumpf glossed over the Times' story at the time.
"I'm having trouble imagining Mr. Stumpf telling the board about the L.A. Times article and saying it's good news," Tigar said.
The judge may have read more recent accounts about Wells Fargo's woes. Stumpf resigned under pressure last year, and the bank recently fired four more executives for their part in the debacle.
As civil and criminal investigations continue, the story is far from over. Stay tuned, your honor.
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