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Oct. 7 — Wells Fargo & Co.'s monthlong struggles continued Oct. 7, when a participant in the company’s 401(k) plan filed a proposed class action challenging a 12 percent drop in the company’s stock price following recent revelations of an illegal cross-selling scheme ( Allen v. Wells Fargo , D. Minn., No. 0:16-cv-03405, complaint filed 10/7/16 ).
The lawsuit follows news last month that Wells Fargo employees had been secretly signing customers up for unauthorized accounts in order to meet internal quotas and keep profits high. Based on these allegations, the bank was fined $185 million, with $100 million of that representing the largest fine ever issued by the Consumer Financial Protection Bureau.
Bringing claims under the Employee Retirement Income Security Act, the new lawsuit alleges that Wells Fargo allowed workers to continue investing retirement savings in the company’s stock, despite knowing that stock price was artificially inflated because of the not-yet-uncovered cross-selling scheme. According to the complaint, Wells Fargo’s stock price nearly doubled during the six-year period of increased cross-selling, before dropping in value once news of the scheme broke.
If recent court rulings are any indication, Wells Fargo plan participant Francesca Allen may face an uphill battle in her attempt to hold the company liable under ERISA. In the past month alone, courts have rejected similar challenges against BP Plc, Whole Foods Corp. and RadioShack Corp. In all three cases, the courts found that employees failed to overcome the high bar recently set by the U.S. Supreme Court for cases challenging stock losses under ERISA.
This most recent suit seeks to hold Wells Fargo liable for losses suffered by as many as 350,000 participants in the company’s 401(k) plan, which holds assets of about $35 billion. In addition to regulatory fines and stock losses, the complaint asserts that the company’s alleged misdeeds have led to significant lost business and “untold reputational damage.”
The lawsuit names several individual Wells Fargo executives as defendants, including Lloyd H. Dean, John S. Chen, Susan E. Engel, Donald M. James and Stephen W. Sanger.
Wells Fargo didn’t immediately respond to Bloomberg BNA’s request for comment.
The lawsuit was filed by Lockridge Grindal Nauen PLLP, Grant & Eisenhofer P.A., Elias Gutzler Spicer LLC and Beasley Allen Crow Methvin Portis & Miles P.C.
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Text of the complaint is at http://www.bloomberglaw.com/public/document/Allen_v_Wells_Fargo__Company_et_al_Docket_No_016cv03405_D_Minn_Oc.
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