Wells Fargo & Co. agreed to settle a Department of Labor investigation that found the company, from 2013 through 2018, overpaid for company stock purchased for its 401(k) plan, the Labor Department announced Monday.
Wells Fargo, which did not admit to or deny the Labor Department's allegations, will pay about $145 million — roughly $131.8 million to the plan's eligible current and former participants and a $13.2 million penalty — to settle the matter.
The company said in a statement that though it disagrees with the Labor Department's allegations and has not conducted these transactions since 2018, it believes "resolving this legacy matter is in the best interest of the company."
The investigation by the Labor Department's Employee Benefits Security Administration determined Wells Fargo and GreatBanc Trust Co. — plan trustee for the Wells Fargo & Co. 401(k) Plan, San Francisco — caused the plan to pay between $1,033 and $1,090 per share for Wells Fargo preferred stock. Specifically designed for the plan, the stock converted to a set value of $1,000 in Wells Fargo common stock when allocated to participants, according to the Labor Department. In transactions between 2013 and 2018, the plan borrowed money from Wells Fargo to purchase the preferred stock, the department noted.
Moreover, EBSA investigators learned Wells Fargo used the dividends paid on the preferred shares to defray its obligation to make contributions to the 401(k) plan, by using the dividends to repay the stock purchase loans, according to the Labor Department. "The investigation revealed the transaction was designed to cause the 401(k) plan to pay more for each share of stock than plan participants would ever receive," the department said in a news release.
"Our investigation found those responsible for Wells Fargo's 401(k) plan paid more than fair market value for employer stock and, by doing so, betrayed the trust of the plan's current and future retirees," Labor Secretary Marty Walsh said in the news release. "Today's settlement shows the Department of Labor will act when we find retirement assets are misused and benefit plans suffer."
In its statement, Wells Fargo said all 401(k) plan participants received "all matching and profit-sharing contributions due to them."
James E. Staruck, president and CEO of GreatBanc, said in a statement that "GreatBanc is proud of the process it followed in conducting these transactions over the years and it is proud of the retirement benefits that these transactions provided to Wells Fargo 401(k) Plan participants."
Once Wells Fargo pays the settlement, the funds will be allocated to current and former participants affected by the 2013-2018 transactions. Wells Fargo will redeem the remaining convertible preferred stock for common stock and will stop using dividends from the convertible preferred shares to repay the stock purchase loans, according to the Labor Department.
For its part, GreatBanc will not act as a fiduciary to a public company in connection with any future leveraged transaction involving an employee stock ownership plan, unless the plan acquires only publicly traded stock and pays no more than the fair-market value, the Labor Department said.
Wells Fargo & Co. 401(k) Plan had $48.8 billion in assets as of Dec. 31, 2020, according to the most recent Form 5500 filing.
