Wells Fargo facing class action over 401(k) stock purchases

Wells Fargo may have settled its overpriced stock case with the Department of Labor, but it’s not out of the legal woods yet.

The San Francisco-based bank thought it was in the clear when it agreed to pay $145 million earlier this month to resolve charges that it overpaid for company stock in its employees’ retirement plan. Unfortunately for Wells Fargo, three of those plan participants are launching their own class-action suit against it, opening the door for even more cases.

According to the settlement with the DOL, Wells Fargo & Co., Wells Fargo Bank and Great Banc Trust Co., the trustee for the plan, agreed to return $131.8 million to plan participants, on top of the $13.2 million penalty imposed by the DOL.

The settlement came after Wells Fargo and Great Banc caused 401(k) plan participants to pay between $1,033 and $1,090 per share for company preferred stock between 2013 and 2018, even though the stock, which was designed for the retirement plan, only converted to $1,000 per share in Wells Fargo common stock when deposited in plan participants’ accounts.

The retirement plan actually borrowed money from Wells Fargo to purchase the preferred stock. Wells Fargo then used the dividends paid on the preferred shares to repay the stock purchase loans and to defray obligations to make contributions to the plan, the DOL said in a statement at the time. The transactions were designed to pay more per share than plan participants would receive, according to the complaint. Neither Wells Fargo nor Great Banc admitted to or denied the allegations, despite agreeing to the settlement.

Now a new suit has been filed by plan participants Lawrence Beville, Aryne Randall and Scott Kuhn that asserts the same facts, but seeks additional compensation. In their view, “the $131.8 million collected by the DOL for 2012–2018 is far less than the $401.5 million in reclassified dividend payments taken from the Plan by Wells Fargo from 2017–2019.” 

The trio claims in the suit that “Wells Fargo, with the knowledge and consent of the other Defendants, converted Plan assets for its own use in blatant violation of ERISA’s prohibited transaction provisions. This was theft of participants’ retirement savings, an important part of their compensation package.”

The lawsuit directly names former Wells Fargo CEO Timothy Sloan as a defendant. Sloan was in charge of Wells Fargo from October 2016 to March 2019, when he resigned under pressure amid a scandal in which Wells Fargo was caught creating millions of fraudulent bank accounts on behalf of Wells Fargo clients without their consent.

The suit says Sloan “knew or should have known the Plan paid more than fair market value for Preferred Stock because he knew dividends exceeding minimum loan payments would be used to defray Wells Fargo’s employer matching liabilities instead of inuring to the benefit of the Plan, even though such dividends were impounded into the fair market value conclusion made by GreatBanc.”