After nearly a month in the public spotlight because its employees opened as many as 2 million unauthorized accounts in attempts to meet cross-selling goals, the company now faces a lawsuit from shareholders.
The case, Hefler v. Wells Fargo & Co., was filed Sept. 26 in U.S. District Court in northern California by attorneys with Robbins Geller Rudman & Dowd, who are seeking class-action status for investors who owned Wells Fargo stock between Feb. 26, 2014 and Sept. 15, 2016.
Gary Hefler, who purchased shares of Wells Fargo during that period, is acting as lead plaintiff, and Shawn Williams of Robbins Geller will serve as lead counsel.
The lawsuit adds to political and regulatory scrutiny of the San Francisco-based bank, which agreed earlier this month to a $185 million settlement with federal and state officials over the accounts. The company has fired 5,300 workers in connection with the matter, and CEO John Stumpf promised to end cross-selling targets as of as many as eight products per customer as of Jan. 1.
"Basically, the minute there's a hint of anybody doing something wrong in the banking industry, someone is going to sue them," Dick Bove, an analyst with Rafferty Capital Markets, said in a telephone interview. "If the company was investigating this issue in February and didn't tell people until September, shareholders were not be informed of a material event. The company didn't meet its requirements."
The lawsuit claims Wells Fargo violated the Securities Act of 1934 while opening deposit accounts and transferring funds without authorization, applying for credit and debit cards without authorization and creating fake email addresses to enroll customers in online banking services.
"What we're seeing in Wells Fargo is total breakdown in human resources systems," Bove said. "Who are they hiring? And how do they monitor people? How can you issue credit cards without underwriting any of them?"
The lawsuit also claims the company's executives took advantage of investors, who believed the cross-selling statistics touted by the company would lead to higher earnings and drive up the stock price. Wells Fargo's shares have fallen 11% this month to $45.09, far worse than a 1.1% decline on the broader S&P 500.
The investors seeking damages "would not have purchased Wells Fargo common stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants," the lawsuit says.
Bove said he has a sell rating on the stock because the company's problems run deeper than many investors believe and massive restructuring may be required.
TheStreet's Jim Cramer is more optimistic. "We are categorically against those involved with Wells Fargo's fraudulent practices, but from an investment perspective, we are not reverting to panic," said Cramer, who holds Wells Fargo stock in his Action Alerts PLUS Charitable Trust. "We are willing to take a long-term horizon amid the sea of volatility spurred by further investigations, management shakeup, and so forth."
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