SAN FRANCISCO–A federal judge had some harsh words for board members of Wells Fargo who were seeking to have a lawsuit against them dismissed.
In response to a lawsuit over the fake account scandal at the bank, which is now believed to involve up to two-million bogus accounts, filed against 15 current or former directors and four current or former officers, Judge Jon S. Tigar denied the defendants’ request to dismiss the case in the United States District Court in San Francisco.
The case involves what’s known as a derivative action, brought on behalf of Wells Fargo on the grounds that it was harmed by the improprieties.
In allowing the case to proceed, Tigar said the court found the Wells Fargo directors had “consciously disregarded an obligation to be reasonably informed about the business and its risks or consciously disregarded the duty to monitor and oversee the business.”
With the opinion, said legal analysts, Tigar made clear directors of corporations can be held accountable for their behavior. In nearly all cases, regardless of the crime that may have occurred, board members usually skate away, those analysts told The New York Times.
But Tigar also had tough words for former members of the bank’s executive team, saying they must have known about the improper account-opening practices because they had access to internal information, including data about the company’s cross-selling of in-house products to customers and clients.
“Just as it is implausible that the director defendants were unaware of the account-creation scheme given the extent of the alleged fraud and the number of red flags,” the judge wrote, “it is implausible that Wells Fargo’s senior management, involved in the day-to-day operations of the bank and with greater access to the underlying cross-sell metrics and employee whistle-blower complaints than independent board members, was unaware of the alleged fraud.”
Among the officers named in the suit are Timothy J. Sloan, Wells Fargo’s current chief executive, and Carrie Tolstedt, the former senior executive vice president of the community banking unit where the account-opening improprieties originated.
The plaintiffs are arguing that each of the directors they have sued either led or was a member of a board committee “responsible for oversight of the allegedly fraudulent banking practices.” The committees are audit and examination; corporate responsibility; governance and nominating; human resources; and risk.
According to The New York Times, in 2016 Wells Fargo’s directors received cash and stock-based pay of $300,000 to $486,000 for a full year’s work.