By Thomas Lee
Published: April 8, 2017
Updated: April 9, 2017 – 10:26am
The bills keep piling up for Wells Fargo as it grapples with a scandal where employees signed up customers for millions of accounts they never asked for. There’s $110 million to settle a class-action lawsuit, on top of $185 million in fines to regulators. The company has made amends in other ways, firing CEO John Stumpf, adding two independent directors to the board and slashing executive bonuses.
The question is whether these moves are enough to suck out the poison that has infected the bank.
Joe Cotchett doesn’t think so. The Burlingame trial lawyer filed a suit last fall in San Francisco Superior Court on behalf of shareholders to force executives and directors to give back bonuses and fees to the company. He also wants directors to personally compensate shareholders for the money the bank used to pay fines to regulators.
“This case is one more example seeking to hold officers and directors of the bank accountable for their conduct and not blame the managers who were simply told what to do,” Cotchett told me.
This month, Cotchett will file documents contesting Wells Fargo’s motion to dismiss the case. He’s not surprised by the bank’s defense, which has been to plead ignorance on behalf of the top brass.
“We are now seeing this defense more and more, that the officers did not know anything and are throwing the lower employees under the bus, all in the name of profit,” he said.
For the most part, Wells Fargo’s see-no-evil leadership, the people who failed to prevent the fraud in the first place (and arguably profited from it), are still in charge. Should investors and customers trust these leaders to change an entrenched sales culture that was instrumental to the bank’s success but also produced behavior like the fraudulent accounts? You can’t really separate the two.
And we keep finding new problems. Wells Fargo reportedly fired at least two dozen employees in its credit card processing business after an internal probe found that some workers falsely reported customers’ sales.
A Wells Fargo spokesman declined to comment for this article. He referred me to the company’s proxy statement, which lists the actions it took to improve corporate governance, including a fraud investigation led by Stephen Sanger, a member of the board since 2003 who was named chairman in October. Wells Fargo plans to release the results this month before the bank’s annual meeting.
If history serves as any guide, Cotchett probably won’t get everything he wants, if anything at all. The scant research on the subject suggests that these “shareholder derivative” suits, in which a shareholder brings a suit on behalf of the company against another party, typically an executive or other insider, produce, at best, only modest victories for investors. Indeed, most don’t even reach a jury. And any legal action can distract the company, making it less focused on innovation and more risk-averse.
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