Wells Fargo & Co. is facing more legal trouble after the bank’s recent cross-selling scandal was revealed last month. A participant in Wells Fargo’s 401(k) plan brought suit against the bank for a “material drop” in its stock price following the news of the scandal, described as a “criminal epidemic” that caused hundred of millions of dollars in damages to the retirement plan, according to court documents.
“Defendants intentionally withheld material non-public information from Plan Participants invested in Wells Fargo stock and the public at large about a criminal epidemic at Wells Fargo associated with a critical component of Wells Fargo’s business model and key driver of its stock price — i.e., cross-selling,” according to the lawsuit, Allen v. Wells Fargo & Co., et al.
About 34% of the assets in the plan, which is a gargantuan $36 billion 401(k) with over 360,000 participants, is invested in the bank’s common stock, according to BrightScope Inc.
Federal banking regulators fined the bank $185 million last month for opening around 2.1 million unauthorized deposit and credit-card accounts for banking customers in an attempt by employees to meet the firm’s sales quotas.
The plaintiff in the proposed class-action lawsuit alleges 401(k) plan fiduciaries knew the value of Wells Fargo stock was artificially inflated because of the “broad and systemic fraud scheme” and that the value of the stock would be negatively impacted once the fraud was disclosed. Fiduciaries violated their duties under the Employee Retirement Income Security act of 1974 by failing to take actions to protect the plan and participants from stock losses that occurred as a result of the scheme, according to the complaint.If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies or complete the contact form.