Wells Fargo & Co. has agreed to pay $1 Billion to settle a lawsuit alleging that it defrauded shareholders about the progress of its recovery from a number of scandals involving its treatment of its customers.
The preliminary settlement for the proposed class action has been filed with the Manhattan federal court late Monday night. It requires the approval of a judge. Court papers reveal that the dollar amount was proposed by a mediator.
Wells Fargo has been operating under consent orders since 2018 from the Federal Reserve, two other financial regulators and two others. These orders required that WFC improve governance and overseeing.
The Fed also imposes an asset limit on the fourth-largest US Bank, which could hinder its ability to compete against larger rivals JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) or Citigroup Inc. (C).
Wells Fargo's shareholders accused the bank of exaggerating how well it was following the orders. The market value of the bank fell by $54 billion in the two years that ended March 2020, as these shortcomings were revealed.
Wells Fargo has not responded to any requests for comments outside of business hours.
Court documents show that the San Francisco bank settled in order to avoid the cost and burden of litigation. The plaintiff's lawyers can ask for up to 19% from the settlement fund as legal fees.
Since 2016, Wells Fargo paid or set aside more than a billion dollars for regulatory investigations and litigation relating to its business practices.
It opened 3.5 million accounts with no customer consent and charged hundreds thousands of borrowers auto insurance that they didn't need.
Charlie Scharf, the Chief Executive of Wells Fargo and Henry Wells Bank founded in 171 years ago by Henry Wells & William Fargo, has admitted that repairing the bank's reputation has taken him longer than he anticipated when he assumed the position in 2019.
In his letter to shareholders dated March 3, he stated that 'when I arrived, there was no culture, no effective processes and no management oversight to correct weaknesses in a timely manner'. "Today, these issues are approached differently."