A federal judge dismissed class-action claims that Wells Fargo & Co, the fourth-largest U.S. bank, misled or defrauded shareholders about its commercial loans. U.S. District Judge William Alsup in San Francisco said shareholders failed to adequately allege that Wells Fargo unjustifiably inflated the quality of its loans, understated loss reserves or misstated its lending practices.
Shareholders claimed to have lost billions of dollars in Wells Fargo stock. This is as the San Francisco-based bank in 2020 gradually revealed the “previously unknown level of risk” in its commercial loans. The proposed class covers shareholders in the three years ending Oct. 13, 2020. But the judge concluded that Wells Fargo had underwriting standards that proved largely accurate or conservative, not inflationary. Alsup did not address whether Wells Fargo intended to defraud anyone, as he found no false statement.
The shareholders, led by the Employees’ Retirement System of the State of Hawaii, could file an amended complaint to address deficiencies in their case. Wells Fargo has operated under consent orders from the Federal Reserve and two other U.S. financial regulators to improve governance and oversight. The Fed also capped the bank’s assets at $1.95 trillion. The bank has faced much criticism over its practices, including for opening accounts without customer permission and charging borrowers for auto insurance they did not need. The case is Employees’ Retirement System of the State of Hawaii v. Wells Fargo & Co, U.S. District Court, Northern District of California.