Pomerantz Appointed Lead Counsel in Wells Fargo Securities Litigation
On June 22, 2021, U.S. District Judge William Alsup of the Northern District of California appointed Pomerantz LLP as Lead Counsel on behalf of the Hawaii Employees' Retirement System, the Lead Plaintiff in Mullen v. Wells Fargo & Company et al., 20-cv-7997 (N.D. Cal.), a securities action brought on behalf of a class of defrauded investors concerning allegations that Wells Fargo & Company (“Wells Fargo” or the “Company”) had misled investors about the strength of its commercial loan operations and failed to follow appropriate underwriting and due diligence standards on risky commercial loans worth billions of dollars.
Wells Fargo is a global financial services company that provides banking, investment and mortgage products and services, as well as other consumer and commercial financial services. The Company is the fourth largest bank in the United States by total assets and one of the largest banks in the world as measured by both market capitalization and total assets.
Allegations against Wells Fargo include that: (i) the Company had failed to follow underwriting standards and due diligence guidelines in issuing commercial loans; (ii) a higher proportion of Wells Fargo’s commercial loans were of poor credit quality and at risk of default than previously disclosed to investors; (iii) the Company had failed to write-down commercial loans that had suffered impairments in a timely manner; (iv) Wells Fargo had understated the reserves needed for credit losses; and (v) as a result, the Company was exposed to the risk of serious financial, reputational and legal harm.
In quarterly reports filed with the U.S. Securities and Exchange Commission (the “SEC”) on October 13, 2017, May 4, 2018 and May 3, 2019, Wells Fargo touted the “solid credit quality” and low net charge-off rate (the ratio of defaulted credit balances in comparison to the total amount of credit extended) of its loans.
The truth began to emerge on April 14, 2020, when Wells Fargo issued a press release announcing its first quarter 2020 financial results in which it revealed that it was taking a massive $4 billion provision expense to account for credit delinquencies, which included $940 million in net charge-offs on loans and debt securities and a $3.1 billion reserve build. On this news, Wells Fargo’s share price fell $4.54 per share, or 14.4%, to close at $26.89 per share by April 16, 2020.
On May 5, 2020, Wells Fargo filed a quarterly report with the SEC in which it revealed that it had suffered $1.7 billion in unrealized losses on its collateral loan obligations. On this news, Wells Fargo’s share price fell $1.74 per share, or 6.3%, to close at $25.61 per share by May 6, 2020.
On June 10, 2020, at the Morgan Stanley Virtual U.S. Financials Conference, CFO Shrewsberry revealed that Wells Fargo’s second quarter reserve build would be even “bigger than the first quarter” as a result of continued deterioration in the Company’s credit portfolio. On this news, Wells Fargo’s share price fell $5.84 per share, or 17.9%, to close at $26.79 per share by June 11, 2020.
On July 14, 2020, Wells Fargo issued a press release announcing its second quarter 2020 financial results in which it revealed that it had suffered a $2.4 billion loss during the quarter, largely as a result of deterioration of the Company’s credit portfolio. On this news, Wells Fargo’s share price fell $1.16 per share, or 4.5%, to close at $24.25 per share by July 14, 2020.
Then, on October 14, 2020, Wells Fargo announced its third quarter 2020 financial results in which it revealed that the Company had recognized another provision expense of $769 million and that non-accrual loans had increased $2.5 billion, or 45%, to $8 billion during the quarter. On this news, Wells Fargo’s share price fell $1.49 per share, or 6%, to close at $23.25 per share on October 14, 2020.