A federal judge in New York has approved Wells Fargo (NYSE:WFC) & Co.'s agreement to pay $1 billion to settle a class-action lawsuit, marking a significant step in the bank's efforts to resolve legal troubles tied to its 2016 customer account scandal. The ruling was made on Friday, according to multiple reports.
The lawsuit, filed in August 2020 in the Southern District of New York, addressed allegations that the bank misled investors about the speed of resolving its infamous customer account scandal. Judge Jennifer Rochon gave her approval for the settlement, which was agreed upon by Wells Fargo on May 8, with pension and employee retirement plans in Louisiana and Rhode Island identified as the main plaintiffs.
The settlement fund will be distributed among individuals who purchased Wells Fargo stock between Feb. 2, 2018, and March 12, 2020. Up to 19% of the total settlement fund, or around $190 million, is set to be allocated 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.”
The lawsuit claimed that Wells Fargo's share price was artificially boosted during that timeframe by statements made by bank executives addressing regulators' consent order requirements. Named defendants included former Wells Fargo CEO Timothy Sloan, retired CFO John Shrewsberry, former general counsel and interim CEO Allen Parker and resigned former chairwoman Betsy Duke.
Despite agreeing to the settlement, Wells Fargo maintained its disagreement with the allegations. In a statement released in May, the bank said: “While we disagree with the allegations in this case, we are pleased to have resolved this matter.”
The lawsuit focused on allegations that Wells Fargo and the individual defendants violated federal securities laws by making false and misleading statements about the bank's compliance with consent orders it had entered into with regulatory bodies in 2018.
The consent orders were designed to rectify certain improper banking practices and deficiencies in corporate oversight, following a $1 billion penalty assessed to the bank in April 2018 by the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC).
This latest settlement is part of a series of regulatory fines and consent orders for Wells Fargo since September 2016. During this period, total regulatory penalties have added up to at least $11.54 billion.
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