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Wells Fargo is a diversified financial services company that provides retail, commercial and corporate banking services, principally in the United States, and during the Class Period was the largest bank by market capitalization.
As part of the Company's business strategy, throughout the Class Period, Wells Fargo emphasized to investors, customers and employees that "cross-selling" was a key part of its strategy to increase the number of retail products that each of its customers, or households, used. For example, if a customer held a mortgage with Wells Fargo, the cross-selling opportunity would be to have the same customer open a credit card or a savings account, or get an auto loan. Wells Fargo's execution on these cross-selling opportunities was considered central to the Company's business and growth prospects and recognized by the analyst community to be among Wells Fargo's best performing business strategies.
The Complaint alleges that throughout the Class Period, Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company's business, operations, and prospects. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (a) The Company illegally, through forgery and other electronic means, applied for and opened credit card accounts on behalf of customers without their knowledge or consent; (b) The Company illegally, through forgery and other electronic means, opened bank deposit accounts on behalf of customers without their knowledge or consent; (c) The Company used fake e-mail addresses to enroll customers in online banking services and request debit cards, including the creation of PINs, without customers' knowledge or consent; (d) The Defendants engineered a sales culture that was designed to incentivize and reward employees for pushing products on customers they did not want or need and rewarded employees for bank and credit card accounts that were opened without the customers' knowledge through forgery or other means; (e) An ongoing internal investigation had in fact found that in excess of 5% of the employees in the Community Banking segment had engaged in a wide ranging scheme to inflate the Company's financial performance figures by, among other things, opening millions of unauthorized deposit and credit card accounts, resulting in mass terminations of employees, ultimately reaching more than 5,000 firings; (f) That, in an effort to conceal the breadth of Defendants' fraudulent cross-selling scheme, Defendants Wells Fargo and Stumpf agreed that they would not terminate Defendant Tolstedt for overseeing the fraudulent activities in the Community Banking segment, but rather would allow her to retire, notwithstanding her leadership over and oversight of the misconduct in the Community Banking segment, and thereby permit her to pocket more than $90 million; (g) The Company's reported cross-selling metrics and the financial results derived from them were the product of Defendants' misconduct; and (h) as a result of the foregoing, Wells Fargo's public statements were materially false and misleading at all relevant times.
On September 8, 2016, the U.S. Consumer Financial Protection Bureau published a Consent Order detailing the Company's fraudulent practices, which were centered on a corporate culture intent on growing its cross-selling opportunities and unlawfully and without its customers' consent opening millions of unauthorized deposit and credit card accounts, and imposing a fine of more than $185 million. The announcement noted that these facts were known to the Company through an internal investigation that had uncovered the fraudulent practices, not as a result of an independent government investigation.
Between September 8, 2016 and September 16, 2016, the Company's stock price declined 9%, from a close of $49.90 per share on September 8, 2016 to a close of $45.43 per share on September 16, 2016, as information about Defendants' conduct and its impact on Wells Fargo's operations reached the market, inflicting billions of dollars of harm on Plaintiff and other Wells Fargo shareholders.
The Pomerantz Firm, with offices in New York, Chicago, Florida, and Los Angeles, is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, the Pomerantz Firm pioneered the field of securities class actions. Today, more than 80 years later, the Pomerantz Firm continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. See www.pomerantzlaw.com
Robert S. Willoughby
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SOURCE Pomerantz LLP