On October 12, 2016, Saxena White filed a shareholder derivative action in the United States District Court for the Northern District of California on behalf of Wells Fargo & Company (“Wells Fargo” or the “Company”) (NYSE:WFC). The complaint charges the directors and officers of Wells Fargo with violations of Section 14(a) of the Exchange Act, breach of fiduciary duty, and unjust enrichment. The complaint alleges that since 2011, the board of directors (“Board”) and executive management of Wells Fargo have perpetuated a business model of aggressively cross-selling additional products to existing customers. Setting unreasonably high sales quotas and threatening employees with termination if they failed to meet these quotas, Wells Fargo management effectively forced its bankers into opening over two million unauthorized accounts to keep their sales numbers competitive, resulting in serious and systematic violations of federal and state laws. As alleged in the Complaint, the Board knew about the significant weaknesses in the Company’s internal controls that should have flagged the misconduct at the Bank’s branch level, but consciously and knowingly allowed this systemic problem to continue so that the Bank’s cross-selling statistics—a key metric and the primary reason for the meteoric rise of Wells Fargo stock—remained strong. As of the filing of the complaint, the Board’s failure to take action has resulted in fines of $185 million, a 9% drop in the Bank’s stock, and untold reputational damage. Further government investigations and other legal action beckon.

The extent of the misconduct of Wells Fargo’s management was revealed on September 8, 2016, when two federal agencies and the Los Angeles City Attorney announced the findings of their investigations and assessed penalties against the Bank totaling $185 million. Specifically, the Office of the Comptroller of the Currency (OCC) issued a consent order for the assessment of a civil penalty in the amount of $35 million and a cease and desist order, for, among other things, unsafe or unsound practices in the Bank’s risk management and oversight of the Bank’s sales practices. The Consumer Financial Protection Bureau (CFPB) issued a consent order requiring Wells Fargo to pay a $100 million penalty—the highest penalty ever assessed by the regulator—and to take other remedial action. And, the City and County of Los Angeles settled their lawsuit against Wells Fargo on behalf of California, imposing a $50 million penalty—the largest in the Los Angeles City Attorney Office’s history. The reaction of Wells Fargo management was to announce that over the past few years, 5,300 employees had been fired for this misconduct.