In what is among the 20 largest all-time U.S. securities class action lawsuit settlements, Wells Fargo has agreed to pay $1 billion to settle claims that it misrepresented its compliance with 2018 Consent Orders regulators imposed on the bank in the aftermath of the company’s bogus customer account scandal. The settlement is subject to court approval. A copy of the parties’ May 15, 2023, stipulation of settlement can be found here.
In 2018, Wells Fargo’s primary banking regulators, having found that the Bank had engaged in “pervasive and persistent misconduct” relating to opening millions of unauthorized bank accounts, imposed Consent Orders on the bank, in addition to levying a $1 billion fine. The 2018 Consent Orders imposed strict operational requirements on the bank, and in addition imposed an “asset cap” prohibiting the bank from growing its assets until it satisfied the Consent Order’s requirements.
In the subsequently filed securities class action lawsuit, the plaintiffs alleged that after the Consent Order was put in place, the bank and its senior executives made misrepresentations regarding its compliance with the Consent Order. The bank, the plaintiffs alleged, claimed that it had regulator approval for compliance plans and that it was “in compliance” with the Consent Orders. The plaintiffs alleged that, in reality, the bank’s compliance and oversight overhaul “could not even get off the ground.” The bank had not submitted an acceptable plan and “was nowhere near meeting the regulators’ requirements that were a predicate to lifting the severe measures that had been imposed on the Bank.”
The plaintiffs allege that a series of revelations, “including damning congressional hearings and reports,” disclosed that the bank had “blatantly disregarded the basic requirements set forth in the 2018 Consent Order and made numerous misrepresentations to the public about its compliance with those orders.” The revelations forced the ouster of the Bank’s CEO, Timothy J. Sloan and a number of its directors. The complaint alleges that as a result of these alleged revelations, the company’s market capitalization declined $54 billion.
In June 2020, a plaintiff shareholder filed the first of several securities class action lawsuits against Wells Fargo and certain of its directors and offices relating the company’s alleged misrepresentations concerning its compliance with the 2018 Consent Orders. The various actions were later consolidated and a Consolidated Amended Complaint was filed. The defendants filed a motion to dismiss the amended complaint. In a September 30, 2021 order (here), Southern District of New York Judge Gregory H. Woods largely denied the motion to dismiss and the case proceeded to discovery. While discovery went forward, the parties entered mediation efforts. The mediation ultimately resulted In the settlement.
As reflected in the parties’ May 15, 2023, stipulation of settlement, the parties agreed to settle the lawsuit based on Wells Fargo’s agreement to pay $1 billion to the plaintiff class. The settlement is subject to court approval. The settlement stipulation does not specify the source of funds to be used for the settlement and makes no reference to the use of D&O insurance proceeds for the settlement funding (however, the term “Defendants’ Releasees” as defined in the stipulation includes “insurers” and “reinsurers”). The settlement stipulation specifies that the plaintiffs’ counsel may apply to the court for an award of attorneys’ fees to be paid out of the settlement amount, but the stipulation itself says nothing specifically about the amount of the plaintiffs’ fee award.
This $1 billion settlement, as massive as it is, does not even make the top 10 of the all-time largest securities class action lawsuit settlements. Based on the ISS Securities Class Action Services latest list of the Top 100 securities class action settlements (as of December 31, 2022, discussed here), this latest settlement qualifies as the 17th largest U.S. securities suit settlement. (To make the top ten, a settlement would have to exceed $1.142 billion). According to the plaintiffs’ lawyers May 16, 2023, press release, this settlement, if approved, would be among the top six U.S. securities class action settlements in the past decade.
This latest settlement is far from the first jumbo corporate and securities lawsuit settlement that Wells Fargo has had to pay as a result of the bank’s phony account scandal and the ensuing consequences. In 2016, after the initial revelations about the bank’s creation of bogus customer accounts, the bank was hit with a separate and prior securities class action lawsuit that, as discussed here, settled in May 2018 for $480 million (which as of December 31, 2022, was the 34th largest securities class action lawsuit settlement).
In addition to the prior phony account scandal securities lawsuit, the board of Wells Fargo was hit with a separate shareholder derivative lawsuit pertaining to the bogus customer account allegations. As discussed here, the shareholder derivative lawsuit settled in March 2019 for a cash payment of $240 million, which is among the top 5 derivative lawsuit settlement ever. (The possibility that there might be a second-round derivative lawsuit settlement to go along with the recent $1 billion securities suit settlement is active, as the Consent Order compliance misrepresentation allegations also resulted in a derivative lawsuit against the Wells Fargo board, which remains pending.)
The phony account scandal itself and the continuing follow-out from the remedial Consent Orders has already resulted in civil lawsuit settlements now totaling over $1.7 billion (with the derivative suit noted in the preceding paragraph still pending). This is of course on top of the hundreds and hundreds of millions of dollars in regulatory fines and penalties the bank has paid in relation to the initial scandal and the ensuing fallout.
This latest Wells Fargo settlement is just the latest recent jumbo securities suit settlement. As I noted in a post at the time (here), earlier this month the parties to the Kraft Heinz securities class action lawsuit agreed to settle the lawsuit for $450 million. Even if these recent settlements don’t crack the top ten largest settlements, they are still massive, and in the aggregate represent huge amounts being paid to resolve securities litigation. The extent of D&O insurer contribution to these settlements isn’t clear but whatever the case may be, these large settlements will get the attention of the D&O insurers and the settlements will have an impact.