Wells Fargo & Co has reached a settlement of $1 billion in a lawsuit that accused the company of deceiving shareholders regarding its efforts to recover from a string of customer-related scandals. The proposed class action settlement was filed with the federal court in Manhattan and is subject to approval by a judge. Court documents indicate that the mediator suggested the settlement amount.
Since 2018, Wells Fargo has been operating under consent orders issued by the Federal Reserve and two additional financial regulators, which mandate improvements in governance and oversight.
The Federal Reserve has imposed an asset cap on Wells Fargo, the fourth-largest bank in the United States. This cap limits the bank's ability to compete with larger rivals such as JPMorgan Chase & Co, Bank of America Corp, and Citigroup Inc.
Shareholders alleged that Wells Fargo misrepresented its level of compliance with the regulatory orders, leading to a decline in the bank's market value by over $54 billion between March 2018 and March 2020, as the deficiencies in its operations came to light.
According to court documents, the bank, headquartered in San Francisco, denied any wrong doing and opted to settle in order to eliminate the costs and burdens associated with litigation. Lawyers representing the plaintiffs may seek legal fees of up to 19% of the settlement fund.
Since 2016, Wells Fargo has allocated and paid several billion dollars to address regulatory investigations and legal disputes related to its business practices. These include instances where the bank opened approximately 3.5 million accounts without customer consent and improperly charged hundreds of thousands of borrowers for unnecessary auto insurance.
According to Chief Executive Charlie Scharf, the process of restoring the reputation of Wells Fargo, which has been in operation for 171 years and was founded by Henry Wells and William Fargo, has proven to be more time-consuming than initially anticipated when he assumed the role in 2019.
“When I arrived, we did not have the culture, effective processes, or appropriate management oversight in place to remediate weaknesses on a timely basis, today, we approach these issues differently.” he said in his March 3 letter to shareholders.
