Insurers for current and former Wells Fargo brass, from CEO Tim Sloan to Transportation Secretary Elaine Chao, agreed to pay $240 million to settle shareholder lawsuits claiming they didn’t live up to their responsibilities to prevent a fake-accounts scandal that tarnished the bank’s reputation and cost millions of dollars.
The terms, detailed in filings in federal court in San Francisco on Thursday and still awaiting approval by a judge, include payment of the plaintiffs’ attorneys’ fees by Wells Fargo and policy changes including the elimination of bonuses that drove employees to set up more than 3 million unauthorized customer accounts in a push to meet ambitious sales targets.
The phony accounts were first disclosed in a $185 million settlement between the San Franciso-based lender and local and federal regulators including the Consumer Financial Protection Bureau in late 2016. They prompted a firestorm of criticism that included numerous Congressional hearings, spurred the departure of then-Chairman and CEO John Stumpf, and prompted numerous employee and shareholder lawsuits.
This week’s proposed settlement of the shareholder claims requires a payment to the corporation — as a representative of all shareholders — on behalf of 20 individuals including Chao, who served as a director from 2011 to 2017, when President Trump appointed her to lead his transportation department. The last board meeting she attended was in November 2016, according to a person familiar with the matter.
Among the other officials named in the settlement were former CEO Stumpf; former consumer banking head Carrie Tolstedt; board member Elizabeth Duke, a former Federal Reserve governor; and former board member Federico Pena, a Clinton-era Cabinet secretary.
The agreement represents the latest step in Sloan’s struggle to restore the bank’s reputation with both customers and regulators, a process plagued by fresh complaints. Earlier this year, Sen. Elizabeth Waren, D-Mass., told Sloan his company shouldn’t be allowed to offer products like credit cards on college campuses after a CFPB report showing its customers paid roughly three times the fees charged by other banks.
Warren — who has previously suggested Sloan should be fired, noting that he served as chief operating officer before Stumpf’s departure and spent a total of 30 years at the company — didn’t immediately respond to a request seeking comment on Friday.
In December, Wells Fargo agreed to pay $575 million to resolve claims with prosecutors in all 50 states and Washington, D.C., related to both the phony accounts as well as issues in its auto- and mortgage-lending businesses. The lender also promised to field teams to answer questions regarding the issues, which have all been investigated by federal regulators, and to offer a website for consumers that explains remediation efforts.
In early 2018, the Federal Reserve ordered the bank not to expand its total assets beyond the nearly $2 trillion held at the end of 2017 until it resolves the regulator’s oversight concerns. Since then, the bank has agreed to pay $1 billion in civil penalties to settle government claims it sold some auto borrowers insurance they didn’t need under the pretense they might not qualify for their loans otherwise and charged fees to mortgage customers that it was supposed to be absorbing.
Last August, Wells Fargo said it would pay $2.09 billion to settle Justice Department allegations that the bank packaged mortgages that were higher risk than they appeared into securities sold before the 2008 financial crisis. Company officials were aware that the borrowers had misstated their incomes, the department said, which would impede their ability to repay the loans.
Amid the revelations, Warren urged the Fed not to lift its growth cap until the bank’s board replaces Sloan, whose 30 years at the lender include a number of leadership positions, but Chairman Jay Powell sidestepped the request.
Wells Fargo rose less than 1 percent to $50.05 in New York trading on Friday, paring its decline over the past year to 13 percent.
