A U.S. District Court judge in Minneapolis dismissed a lawsuit by participants in Wells Fargo's 401(k) plan, saying the plaintiffs failed to demonstrate that plan executives breached their fiduciary duties under the Employee Retirement Income Security Act.
The lawsuit stemmed from an action Sept. 8, 2016, when the federal Consumer Financial Protection Bureau fined Wells Fargo $100 million for its employees opening unauthorized deposit and credit card accounts without customers' knowledge. Plaintiffs charged that plan fiduciaries "were corporate insiders who knew about the improper sales practices long before the public announcement," according to the court document announcing the dismissal and filed the suit arguing that fiduciaries violated ERISA by not disclosing those practices before September 2016. The lawsuit argued that an earlier disclosure would have lessened the impact on Wells Fargo's stock price.
In his decision, Judge Patrick J. Schiltz dismissed the lawsuit saying plaintiffs did not plausibly allege an alternative action the company could have taken to avoid the specific drop in stock price that came following the announcement of the fines. The stock closed at $49.77 on Sept. 7, 2016, the day before the fines were announced. It dropped to a low of $43.55 after the fines were announced, but the stock closed Monday at $54.03.
As of Dec. 31, 2016, the Wells Fargo & Co. 401(k) plan had $38.2 billion in assets, according to the company's most recent 11-K filing. As of that date, $9.9 billion was invested in company common stock.
W. Daniel Miles III, principal and consumer fraud section head at Beasley Allen Crow Methvin Portis & Miles, an attorney for the plaintiffs, and Ancel Martinez, Wells Fargo spokesman, could not be immediately reached to provide comment.
Rob Kozlowski is a reporter at InvestmentNews' sister publication Pensions & Investments.