Wells Fargo executives, board must face lawsuit over fake accounts
Economist Jerry Bowyer on the similar problems at play in Equifax’s data breach and Wells Fargo’s phony account scandal.
A federal judge said current and former Wells Fargo & Co <WFC.N> officers and directors, including Chief Executive Officer Tim Sloan, must face nearly all of a lawsuit by shareholders seeking to hold them personally liable for sales abuses and the creations of millions of unauthorized accounts.
U.S. District Judge Jon Tigar in San Francisco said shareholders may pursue claims that Wells Fargo officials looked the other way as employees facing "unrelenting" pressure to meet sales quotas unlawfully opened accounts, and misled the public about fraudulent practices at the nation's third-largest bank.
"Where, as here, plaintiffs' claims arise from a pervasive and undisputed fraud going to the core of the company's business, it is reasonable to infer senior executives knew about, or at least recklessly turned a blind eye to, the stream of red flags," Tigar wrote in a decision dated Wednesday.
The judge also said that in the "unlikely" event Sloan did not know about the suspect practices before 2013, when he was chief financial officer, he was "certainly aware of these issues" by December 2013 when he told the Los Angeles Times: "I'm not aware of any overbearing sales culture."
Wells Fargo spokesman Peter Gilchrist said in an email that the bank was taking "decisive steps" to rebuild trust, including from employees and shareholders. "We will continue to advocate strongly for our positions before the courts," he added.
Lawyers for the plaintiffs did not immediately respond to requests for comment.
The shareholder derivative lawsuit seeks to force officers and directors - or their insurers - to reimburse Wells Fargo for losses caused by their alleged poor oversight and misleading statements, as well as governance changes.
Wells Fargo has been rocked since September 2016 by a series of scandals, including the San Francisco-based bank's creation of as many as 3.5 million unauthorized accounts.
Many lawsuits have been filed, including on behalf of customers, and several top officials including onetime Chief Executive John Stumpf and retail banking chief Carrie Tolstedt have left the bank.
Stumpf and Tolstedt are defendants in the derivative lawsuit.
Sloan testified on Tuesday before the Senate Banking Committee about Wells Fargo's response to the scandals, and faced attacks from Republican and Democratic senators.
Senator Elizabeth Warren, a Massachusetts Democrat, called for Sloan to be fired.
The case is In re: Wells Fargo & Co Shareholder Derivative Litigation, U.S. District Court, Northern District of California, No. 16-05541.
(Reporting by Jonathan Stempel in New York; Editing by Marguerita Choy)