Wells Fargo Agrees To Pay $1 Billion To Settle Class Action In Fake Accounts Scandal

Wells Fargo has agreed to pay $1 billion to settle a class-action lawsuit filed by its shareholders, accusing the San Francisco-based bank of conducting unlawful practices against its customers.

The all-cash settlement, filed Monday, received preliminary approval by U.S. District Judge Gregory Woods in Manhattan federal court Tuesday, making it one of the top six largest securities class-action settlements of the past decade, the New York Post reported.

The class action was filed by shareholders in 2020, alleging the bank made "materially false and misleading statements" about its compliance with federal regulators' orders in 2018, according to The Hill.

In the lawsuit, filed on behalf of several public employees from Mississippi and Rhode Island, Wells Fargo was accused of conducting illegal business practices between 2002 and 2016, including opening millions of accounts without the consent and knowledge of customers, imposing unreasonable overdraft fees on accounts, and unlawfully freezing accounts.

U.S. regulators sanctioned Wells Fargo on multiple occasions over violations of consumer protection laws dating back to 2016, when it was found that millions of accounts were opened illegally by the bank's employees to meet their sales goals.

In the aftermath of the accusations, the financial institution removed its top executives, and vowed to correct the internal deficiencies that resulted in the unfair treatment of customers.

"This agreement resolves a consolidated securities class action lawsuit involving the company and several former executives and a director, who have not been with the company for several years," Wells Fargo spokeswoman Laurie Kight said in a statement. "While we disagree with the allegations in this case, we are pleased to have resolved this matter."

Advocates representing the investors in the suit asserted that if approved, the settlement will help compensate thousands of investors, including state employees, nurses, teachers, police and firefighters among others "whose critical retirement savings were impacted by Wells Fargo's fraudulent business practices."

"Wells Fargo betrayed the trust of Rhode Island pensioners and now is rightly facing consequences because of that. I am proud that ERSRI (Employees' Retirement System of Rhode Island) stood up for its stakeholders and held Wells Fargo accountable for its misconduct, and for achieving the historic settlement," said Rhode Island general treasurer James A. Diossa on behalf of co-lead plaintiff ERSRI.

Lawyers and plaintiffs are likely to see at least 19% of the settlement amount as their legal fees.

The latest settlement amount adds to a string of fines and setbacks confronted by Wells Fargo amid its efforts to restore its image from a slew of scandals.

In December last year, Wells Fargo was fined a record $1.7 billion by federal regulators for years of "widespread mismanagement" that put more than 16 million consumer accounts at risk. Under the order of the Consumer Financial Protection Bureau (CFPB), the banking giant also agreed to pay $2 billion to settle a slew of charges filed against it for reportedly harming consumers by charging illegal fees and interest on auto loans and mortgages. It was reported to be the largest penalty by the watchdog against any bank to date.

"Wells Fargo's rinse-repeat cycle of violating the law has harmed millions of American families," CFPB director Rohit Chopra had said at the time.

This lawsuit focused on the bank's misconduct against its customers between 2018 and 2020 after regulators recognized many concerning ill practices.

In 2020, Wells Fargo agreed to pay $3 billion to resolve investigations into consumer abuses that lasted for more than a decade.