In the wake of a scandal involving fake accounts created for banking customers without their knowledge, Wells Fargo faces class action lawsuits and other legal backlash.
Over the last few days, the company has faced a new lawsuit brought by stockholders, who say its value was artificially inflated, and the major bank has been banned from doing business with the city of Chicago for a year. California has also filed a 12-month sanction against Wells Fargo, removing it as underwriter from two state bonds, among other penalties.
However, the largest action against the bank so far is a $2.6 billion class action lawsuit filed by former Wells Fargo employees, who claim they were fired, demoted, or forced to resign after failing to meet aggressive sales goals which often required opening fraudulent accounts for customers.
The Wells Fargo class action lawsuit was filed last month in California Superior Court in Los Angeles by two former employees, Alexander Polonsky and Brian Zaghi. The complaint (PDF) seeks to represent both past and current employees who followed financial laws but were penalized by the company for failing to meet sales quotas.
In September, a massive Wells Fargo Bank fraud was revealed, when it was announced that the bank will pay $185 million in fines to the federal government, and return about $2 million in fees to customers who had fake accounts and credit cards set up in their names.
More than two million such ghost accounts and credit cards were made without the knowledge or permission of the customers, who were often then hit with fees and charges for accounts they did not want or know they had. The fraudulent Wells Fargo accounts were reportedly established in response to a bonus structure at the bank, which was encouraged by sales targets and compensation incentives based on new account activity.
There are now a growing number of Wells Fargo lawsuits being pursued by both former employees and customers over the practices.
The company has fired about 5,300 employees whom it says participated in creating the fraudulent accounts. Those employees consist largely of lower level hourly workers, and not top executives, whom many critics say must have encouraged the creation of the fake accounts for it to be such a widespread practice.
However, the lawsuit indicates that many employees were fired, demoted, or forced out when they did not create fraudulent accounts and thus failed to meet the company’s sales goals. The lawsuit claims that Wells Fargo executives were well aware of the practice of creating the fake accounts.
“Wells Fargo’s fraudulent scam which was set at the top and directed toward the bottom was to squeeze employees to the breaking point so that they would cheat customers so that the CEO could drive up the value of Wells Fargo stock and put hundreds of millions of dollars in his own pocket,” the lawsuit states. “Wells Fargo could then place the blame on thousands of $12 an hour employees who were just trying to meet cross-sell quotas that made the CEO rich.”
This latest lawsuit is similar to claims filed by former Wells Fargo employees in 2014, which included charges of wrongful termination and failure to pay over time charges, as well as other labor law violations. Workers represented in the case say that Wells Fargo regional executives told them to open ghost accounts to meet sales targets, and those who refused were sometimes fired.
The charges came to the government’s attention in a lawsuit filed last year by Los Angeles City Attorney Mike Feuer.