Wells Fargo settles $1B class action lawsuit over mishandling of phony account scandal, ending a decade-long fallout.
Preliminary settlement: The $1 billion settlement figure was reported by the Wall Street Journal and is part of a preliminary settlement detailed in court documents filed with a federal court in Manhattan.
Lawsuit background: The class action lawsuit was brought by shareholders of Wells Fargo over the bank's handling of the 2016 fake accounts scandal. It alleged that the bank took longer than publicly stated to address the issues and accused executives of providing an overly optimistic portrayal of the bank's interactions with regulators.
Shareholders involved: The shareholders involved in the lawsuit include pension funds from Louisiana, Rhode Island, and Mississippi, as well as Swedish investment firm Handelsbanken Fonder.
Approval process: The settlement figure, proposed by a mediator, is still subject to approval by a federal judge in New York. If approved, it is expected to become one of the largest class action settlements in history.
Distribution of proceeds: The settlement funds will be distributed to investors who purchased Wells Fargo stock between February 2, 2018, and March 12, 2020.
Response from Wells Fargo: Forbes reached out to Wells Fargo for comment, but the bank has not responded at the time of writing.
Previous penalties and scandals: This settlement adds to the series of penalties, settlements, and setbacks faced by Wells Fargo as it works to repair the damage caused by a string of scandals. The bank has already allocated billions of dollars to resolve various issues.
Fake accounts scandal: Wells Fargo's reputation was severely damaged when it was revealed in 2016 that the bank had opened millions of fake accounts for customers without their consent. This scandal had far-reaching consequences, triggering investigations, regulatory restrictions, and negatively impacting the bank's market value.
Allegations in the lawsuit: Shareholders in the class action suit claim that the bank's executives overstated its ability to comply with regulatory orders, resulting in a decline in the bank's market value.