Wells Fargo Hit With $2.6B Class Action By Former Employees

Wells Fargo & Company (NYSE:WFC) faces yet another legal hassle stemming from the sales scandal, this time by its employees. On Sep 22, two former employees of the bank filed a class action in California Superior Court in Los Angeles County seeking at least $2.6 billion in damages.

The latest litigation has cropped up after more than 2 weeks since the San Francisco-based banking giant reached the $190-million settlement to resolve regulators’ claims of illegally opening millions of unauthorized accounts. The bank terminated around 5,300 employees for sales misconduct as a result of investigations that commenced from Jan 1, 2011 through Mar 7, 2016.

In Brief

The lawsuit was filed, by Alexander Polonsky and Brian Zaghi on behalf of other employees of Wells Fargo in California, who were dismissed or demoted over the past 10 years. The suit claimed that the bank levied strict quotas on employees and put pressure on them to impose up to 10 banking products on customers irrespective of the customers’ requirement.

According to the 26-page complaint, the bank's rigorous and illegal sales practices pushed employees to the verge of "breaking point." The bank is accused of strictly enforcing and closely monitoring sales quota system which in a way forced the employees to adopt fraudulent measures as a way to protect their employment. While the top executives gained from the misconduct, the blame shifted to thousands of employees who earned $12-per-hour and were often forced to work beyond their schedules to meet the sales quotas.

Per the complaint, "The biggest victims of this scheme are a class of people that nobody else has talked about. The biggest victims of Wells Fargo's scam are the class of victims that were fired because they did not meet these cross-sell quotas by engaging in the fraudulent scam that would line the CEO's pockets.” The suit further added, "The good employees with a conscience who tried to meet the sales quotas without engaging in fraudulent scams are the biggest victims of this scam. They are the employees that this lawsuit seeks to redress."

The lawsuit accuses Wells Fargo of wrongful termination, failure to pay wages and unlawful business practices.

Among other legal woes tied with the scam, recently, the company’s board has been slammed with a lawsuit alleging breach of duty to investors. Also, three customers in Utah have filed a lawsuit against the bank for fraud, breach of contract and invasion of privacy.

Bottom Line

Last week, John Stumpf – Chairman and CEO of Wells Fargo – apologized for unethical sales practices and specifically stated that there was no “no orchestrated effort or scheme” by the bank to promote the wrongful sales practices when he testified before the U.S. Senate Banking Committee. Notably, committee members including Democrat Elizabeth Warren demanded Stumpf’s resignation.

The apology from the CEO, however, did little to calm the public and political outrage against Wells Fargo – that once earned admiration for steering well through the onslaughts of the financial crisis.

Since the announcement of the settlement on Sep 8, shares of Wells Fargo lost around 8%. Year-to-date, the company’s shares fell about 16%, compared with around 3% decrease in the KBW Nasdaq Bank Index.

WELLS FARGO-NEW Price

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Wells Fargo currently carries a Zacks Rank #4 (Sell).

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