Class Action Lawsuit Against Wells Fargo

Introduction, Facts & Summary

In 2016, Wells Fargo, at the time, the fourth largest bank in the United States, admitted to pressuring employees to open more than two million fraudulent bank accounts. This conscious deception by the bank and its executives was in an attempt to shore up their sales numbers. Before the admission of the fraud, Wells Fargo was the envy of the banking industry in the US for its prowess in cross-selling multiple products. An investigation by the Security Exchange Commission (SEC) and the Justice Department prompted the bank to admit to the fraud in a settlement agreement. However, the bank’s troubles would not end with its admission of guilt because, in the same year, investors filed a class action lawsuit alleging that they suffered financial loss by buying artificially inflated shares. Thus, Wells Fargo’s 2016 accounts scandals elicited criminal and civil proceedings.

The class action lawsuit appeared in court documents as Hefler and others against Wells Fargo and others. A class action lawsuit is a lawsuit where a plaintiff is a group of people represented by one or more members of the group in the courtroom. In their complaint, the plaintiffs alleged that Wells Fargo consciously engaged in deceptive behavior to fraudulently inflate their sales numbers (Reuters, 2016). Buoyed by the impressive company performance and with no knowledge of the fraud the company was perpetrating, the plaintiffs invested their money in the company stock. Consequently, the plaintiff, representing Wells Fargo stock investors, suffered a financial loss as the company’s stock price plummeted following its admission of the fraud it had perpetrated (Lynch & Cutro, 2017). In this regard, the plaintiffs were seeking a financial award from the court to compensate them for their loss. The concerned investors represented investors who had bought Wells Fargo stock between February 2012 and September 2016.

Case Analysis

The case against Wells Fargo by the investors was on solid ground because of their admission of guilt during their settlement agreement with the Justice Department and the SEC. They could not plead double jeopardy because their settlement did not include the company’s stock investors. Thus, they had two options where they could either settle the case with the investors or plead not guilty in court and let the plaintiffs argue their case before a judge and jury (Tayan, 2019). At the heart of the lawsuit was an allegation that the company’s deceptive sales practices led to a temporary rise in the company’s stock which then plummeted following the revelations of malpractice. Their allegation was easily supported by evidence because Wells Fargo’s stock dropped to a two and half year low. Further, the company’s guilt concerning opening more than 2 million fraudulent accounts was a matter of public knowledge. Thus, given the amount of evidence against Wells Fargo, their best option would be an out-of-court settlement.

Fraud was the legal issue at the heart of the conflict between Wells Fargo and others and Hefler and others. The plaintiff (Hefler) alleged that Wells Fargo, together with others, fraudulently inflated their products’ sales numbers to gather positive market sentiments, which temporarily boosted the company’s stock price (Austin-Campbell, 2021). With their fraudulent practices coming to light, the investors (plaintiffs) suffered financial loss as the company’s stock price fell. In any litigation, including fraud litigation, the burden of proof falls on the plaintiff. In this case, if the accused choose to proceed with the case to trial, the plaintiff would be required to prove several things. Firstly, they would have to prove that Wells Fargo intended to manipulate market sentiments by fraudulently inflating its sales figures. Secondly, they would need to prove that they relied on sales information put out by the company and the positive sentiments it generated to invest in the company’s stock. Finally, they would be required to prove that they suffered financial loss as a result of their reliance on false sales figures information for investing.

Relevant Legislation in the Case

The relevant legislation in the case is the federal security laws. Specifically, Wells Fargo’s actions fell under the jurisdiction of the Sarbanes-Oxley Act of 2002, the Securities Exchange Act of 1934, and the Dodd-Frank Consumer Protection Act of 2010. The Sarbanes-Oxley Act of 2002 was enacted to protect investors against corporate fraud and promote corporate responsibility (Tayan, 2019). By fraudulently inflating sales figures, Wells Fargo breached the provisions of the Act. Additionally, Wells Fargo breached rules laid out in the Security Exchange Act of 2002 by consciously and deliberately manipulating market sentiments using fraudulent sales figures. Finally, Wells Fargo was in breach of the Dodd-Frank Act of 2010, which seeks to promote corporate governance of the protection of consumer rights. Overall, Wells Fargo breached three federal security laws on corporate fraud, corporate governance, and consumer protection.


The conflict involved in this case was settled out of court in 2018 by the concerned parties. I agree with the outcome of the class action lawsuit against Wells Fargo. Specifically, the company agreed to pay more than 450 million dollars to compensate for the financial loss suffered by the plaintiffs (Lynch & Cutro, 2017). In total, the company paid more than $3 billion for its deliberate fraud that involved inflating its sales figures (Lynch & Cutro, 2017). By mandating Wells Fargo to pay the hefty settlement amount, the SEC and the justice department ensured that similar behavior would not be repeated because of the costs involved.


Austin-Campbell, S. (2021). Wells Fargo: An examination of a corporate scandal and the economic impact on the value of the Stock. SSRN Electronic Journal.

Lynch, L. J., & Cutro, C. (2017). The Wells Fargo Commercial Banking scandal. SSRN Electronic Journal.

Reuters. (2016). Wells Fargo was just hit with a shareholder class action lawsuit. Fortune. Web.

Tayan, B. (2019). The Wells Fargo cross-selling scandal. The Harvard Law School Forum on Corporate Governance. Web.