Wells Fargo to pay $1 billion to settle a lawsuit which accused it of defrauding shareholders

Wells Fargo has agreed to pay $1 billion as part of a settlement to resolve a lawsuit accusing the bank of defrauding shareholders. The lawsuit alleged that the San Francisco-based bank misled shareholders regarding its efforts to recover from a series of scandals related to its treatment of customers.

The settlement, which is subject to a preliminary approval granted by US District Judge Gregory Woods in Manhattan federal court, will be paid in cash. The final approval hearing is scheduled for September 8.

Since 2018, Wells Fargo has been operating under consent orders from the Federal Reserve and other regulatory bodies, requiring the bank to enhance its governance and oversight.

As the fourth-largest bank in the US, Wells Fargo is also subjected to an asset cap imposed by the Federal Reserve. This cap restricts the bank’s growth and hampers its ability to compete with rivals such as JPMorgan, Bank of America Corp, and Citigroup Inc.

Shareholders accused Wells Fargo of exaggerating its progress in complying with the regulatory orders. They argued that the bank’s market value declined by over $54 billion between March 2018 and March 2020 as its shortcomings were revealed.

While Wells Fargo denied any wrongdoing, it chose to settle in order to eliminate the burden and costs associated with the litigation, as stated in court documents. The bank expressed its satisfaction with the resolution while disagreeing with the allegations made against it.

Plaintiffs’ lawyers may seek up to 19% of the settlement fund to cover their legal fees.

Since 2016, Wells Fargo has paid or set aside several billion dollars to address regulatory investigations and legal disputes stemming from its business practices. These practices included opening approximately 3.5 million unauthorized accounts and improperly charging hundreds of thousands of borrowers for unnecessary auto insurance.

CEO Charlie Scharf acknowledged that the process of rebuilding and reforming the bank, which was founded 171 years ago, has taken longer than initially expected when he assumed the position in 2019. He emphasized the bank’s commitment to addressing the issues and implementing changes to prevent similar incidents in the future.