Wells Fargo 401(k) Plan “Self-Dealing” Stock Purchase Class Action

This class action concerns a purchase of stock for the employee stock ownership plan (ESOP) portion of the Wells Fargo & Company 401(k) Plan. The complaint alleges that the terms of the deal amount to self-dealing by the company and a breach of fiduciary duty, both in the price of the shares and the terms of the Wells Fargo loan used to buy them. It brings suit against Wells Fargo & Company, GreatBanc Trust Company, the Employee Benefit Review Committee, and various individuals.

The class for this action is all participants in the Wells Fargo & Co. 401(k) Plan, between September 27, 2016 and the date of judgment in this case, who held any portion of their plan accounts, at any time during this period, in the Wells Fargo ESOP Fund.

Under the Employee Retirement Income Security Act (ERISA), the complaint says, “fiduciaries are bound to act with an ‘eye single’ to the interest of the plan participants and beneficiaries to whom they owe a duty.” But the complaint alleges that the defendants in this case breached this duty “by favoring the economic interest of Wells Fargo over those of the Plan and its participants…”

The stock was Wells Fargo preferred stock, bought for the ESOP portion of the plan between 2007 and 2018, with loans financed by Wells Fargo.

The complaint alleges that one problem with the deal was that the terms of the loans used to buy the stock “required the Plan to use Preferred Stock dividends to pay the principal and interest. But the dividend income from Preferred Stock owned by the Plan vastly exceeded the amounts paid on the loans by tens of millions, sometimes hundreds of millions, a year.”

The complaint alleges that Wells Fargo used the excess money to make the employer matching contributions it was contracted to pay into the plan—that is, it used the money for its own benefit and not for the benefit of the participants in the plan.

Also a problem, the complaint alleges, was the valuation of the stock. Because preferred stock is not easily traded on the open market, the complaint says, “the value of Preferred Stock must be determined under the ‘adequate consideration’ standard,” which the complaint says in such instances “is defined as the fair market value as of the date of the transaction.”

“When valuing Preferred Stock,” the complaint alleges, Wells Fargo and the other defendants in this case “among other things, factored the projected income form Preferred Stock dividends into the fair market value of the stock.” But the complaint claims that it was not the plan that was getting this benefit of the dividends but Wells Fargo.

According to the complaint, then, “Wells Fargo, with the knowledge and consent of the other defendants, converted Plan assets for its own use in blatant violation of ERISA’s prohibited transaction provisions.” The complaint claims that this was “theft of participants’ retirement savings, an important part of their compensation package.”

Article Type: Lawsuit
Topic: Employment
Tags: 401(k) Plans, Breach of Fiduciary Duty, Employee Stock Ownership Plan (ESOP), Prohibited Transactions, Retirement Plans