Federal judge approves $1B Wells Fargo settlement Federal judge approves $1 billion Wells Fargo settlement

A federal judge in New York approved Friday the Wells Fargo & Co. agreement to pay $1 billion to settle a class-action lawsuit.

The lawsuit, filed in August 2020 in the Southern District of N.Y., addressed whether the bank misled investors about the pace of resolving its 2016 customer account scandal. Judge Jennifer Rochon approved the settlement.

The bank agreed to the settlement on May 8 with pension and employee retirement plans in Louisiana and Rhode Island as the main plaintiffs.

Eligible are individuals who purchased Wells Fargo stock between Feb. 2, 2018, and March 12, 2020. Up to 19% of the settlement fund, or $190 million, would go to the plaintiffs' attorneys.

"Investors suffered significant losses as a result of Wells Fargo's fraudulent business practices," said Steven Toll, managing partner at the law firm of Cohen Milstein Sellers & Toll, which oversaw the litigation.

"This historic settlement will help compensate the hundreds of thousands of investors whose retirement savings were impacted."

Plaintiffs claimed Wells Fargo's share price was boosted during that timeframe by statements made by bank executives in addressing regulators' consent order requirements.

Among named defendants were former Wells Fargo chief executive Timothy Sloan, retired chief financial officer John Shrewsberry, former general counsel and interim chief executive Allen Parker and resigned former chairwoman Betsy Duke.

Wells Fargo said in a May statement that "this agreement resolves a consolidated securities class action lawsuit involving the company and several former executives and a director, who have not been with the company for several years."

"While we disagree with the allegations in this case, we are pleased to have resolved this matter."

Bowman Gray IV, a local independent stockbroker, said the settlement likely represents the plaintiffs opting to take the settlement fund offer rather than wait for a jury trial "to potentially be awarded more and potentially have to wait yet again for the appeal, which could take years."

"I find it interesting that Wells Fargo was quoted as saying that it disagreed with the findings though (current CEO Charles) Scharf told shareholders in March that he was surprised at the lack of progress addressing the regulatory issues. ... 'we were not as far along as I had expected when I arrived.'"

The details

The lawsuit focused on allegations the bank and individual defendants "violated the federal securities laws by making false and misleading statements about Wells Fargo's compliance with consent orders it had entered into with the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB) in 2018."

One example occurred in April 2018 when a then-historic $1 billion penalty was assessed to the bank in consent orders from the CFPB and the OCC.

The penalty addresses regulatory claims that the bank violated the Consumer Financial Protection Act in certain auto loans and mortgage interest rate-lock extensions.

Those consent orders were designed "to rectify certain improper banking practices and deficiencies in corporate oversight."

The settlement cited as an example that Wells Fargo claimed it had regulator approved "plans" and that it was "in compliance" with the 2018 consent orders.

"Lead plaintiffs allege that, in reality, Wells Fargo had yet to even submit an acceptable plan or schedule for compliance to the regulators and was nowhere near meeting the regulators' requirements that were a predicate to lifting restrictions that had been imposed on Wells Fargo, including an asset cap.

"Lead plaintiffs further allege that the truth was revealed in a series of revelations, including in congressional hearings and reports. Lead plaintiffs allege that when the truth was revealed, Wells Fargo's stock price fell."

'Artificially inflated'

According to a chart in the settlement filing, the share price was considered as "artificially inflated" during the specified time period.

MoneyMSM.com had the Wells Fargo share price in the range of a low of $29.75 in March 2020 to a high of $59.82 in February 2018.

The range of the inflation is listed as:

Feb. 2, 2018 to Jan. 14, 2019: average of $5.12 a share;Jan. 15-April 11, 2019: average of $4.49;April 12, 2019, to Jan. 13, 2020: average of $3.22;Jan. 14-March 4, 2020: average of $1.93;March 5-10, 2020; average of $1.71;March 11, 2020: $1.24; andMarch 12, 2020: 63 cents.

According to the settlement, the estimated average recovery - before the deduction of any court-approved fees, expenses and costs - is 53 cents per affected share.

"Some settlement class members may recover more or less than this estimated amount depending on, among other factors, when and at what prices they purchased/acquired or sold their Wells Fargo shares, and the total number and value of valid claim forms submitted," according to the ruling.

Just the latest

Wells Fargo confirmed on Aug. 31, 2017, that there could be at least 3.53 million accounts affected by its fraudulent customer accounts scandal that erupted in September 2016, up from the 2.1 million initially announced.

Retail-bank employees opened accounts for customers who did not request them, or added non-requested insurance and residential mortgage services. Those moves garnered Wells Fargo tens of millions of dollars in fees.

Most of the customer account fraud victims were in Arizona and California. Wells Fargo has said it cannot rule out that at least 38,722 unauthorized customer accounts were established in North Carolina and 23,327 in South Carolina.

Depending on which issue is discussed, the scandal period could go back as far as May 2002, with some customers potentially affected into mid-2017.

The $1 billion settlement is just the latest in a series of regulatory and other federal fines and consent orders for Wells Fargo since September 2016.

During that time period, total regulatory penalties have added up to at least $11.54 billion.

rcraver@wsjournal.com336-727-7376@rcraverWSJ