A new lawsuit filed in the U.S. District Court for the District of Minnesota suggests Wells Fargo’s highly publicized sales violations in its personal banking business have also caused the company to breach its fiduciary duty to retirement plan participants.
Specifically, plaintiffs accuse the bank’s internal management of improperly retaining common stock of Wells Fargo & Company as an investment option in the company’s 401(k) plan “when a reasonable fiduciary using the care, skill, prudence, and diligence … that a prudent man acting in a like capacity and familiar with such matters would have done otherwise.”
The allegations in the suit follow the classic pattern of so-called “stock drop” litigation, and they follow a similar complaint filed against Wells Fargo just last week in the same jurisdiction, with some important differences.
By way of background, negative media reports and Congressional inquiries have plagued Wells Fargo’s personal banking wing for roughly a month now. According to published news reports and the admissions of now-ousted CEO and Chairman John Stumpf, the company’s aggressive sales requirements for low-level banking professionals directly inspired the opening of millions of unauthorized customer accounts. This resulted in a major backlash against the company that has cut roughly 12% to 15% of Wells Fargo stock’s market value compared with this time last year. The company faces separate civil penalties approaching $200 million.
This second piece of proposed class-action litigation argues that defendants, who allegedly had access to non-public information relating to Wells Fargo’s operations, permitted the plan to continue to offer Wells Fargo Stock as an investment option to participants even after they knew or should have known that Wells Fargo Stock was artificially inflated during the class period—defined by plaintiffs as January 1, 2011 to September 8, 2016.
“Due to the artificial inflation of the company stock price—which would be corrected upon the revelation of negative information—Wells Fargo Stock was an imprudent retirement investment for the plan given its purpose of helping plan participants save for retirement,” the plaintiffs claim. “As fiduciaries of the plan, defendants were empowered to remove Wells Fargo Stock from the plan’s investment options, or to take other measures to help participants, but failed to do so or to take any other action to protect the interests of the plan or its participants.”
As a result, according to the plaintiffs, Wells Fargo managers breached their obligations under ERISA and are liable for damages to a large class of participants.
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