A participant in the Wells Fargo 401(k) Plan sued plan executives, corporate executives and several corporate entities alleging that executives failed in their fiduciary duties to manage the plan’s company stock fund and other Wells Fargo investments while the company was embroiled in a financial scandal.
The defendants “intentionally withheld material non-public information” about the company’s practice of cross-selling investment products and establishing an incentive structure “that encouraged and caused employees to sign up customers for unauthorized and unwanted accounts and other banking products to generate inflated share price growth,” said the lawsuit filed Oct. 7 in U.S. District Court in Minneapolis.
The lawsuit, which seeks class-action status, said the value of Wells Fargo stock in the 401(k) plan dropped due to the executives’ breach of fiduciary duties. The case is Francesca Allen vs. Wells Fargo & Co. et al. According to the complaint, the 401(k) plan has about $35 billion in assets and covers more than 350,000 participants. It could not be learned how much is invested in company stock.
On Sept. 8, the federal Consumer Financial Protection Bureau fined Wells Fargo $100 million for its employees opening unauthorized deposit and credit card accounts without customers’ knowledge. The company also agreed to pay a total of $85 million in fines to the U.S. Comptroller of the Currency and to the city and county of Los Angeles.
The stock closed at $49.77 on Sept. 7, the day before the fines were announced. It closed at $44.75 Thursday. The lawsuit was filed five days before John Stumpf, chairman and CEO of Wells Fargo, announced his immediate retirement. The company’s board of directors elected Tim Sloan, the president and chief operating officer, to succeed Mr. Stumpf as CEO. Mr. Sloan will retain the title of president. Stephen Sanger, the board’s lead director, was elected as non-executive chairman.
The complaint said it was “imprudent and disloyal” for the defendants to permit the 401(k) plan “to offer funds primarily invested in Wells Fargo stock as investment options, particularly when portions of plan assets automatically defaulted into Wells Fargo stock.”
Two representatives of Wells Fargo did not return a request for comment.