Case 1:20-cv-04494-GHW Document 146 Filed 10/03/22 Page 1 of 34
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`Case No. 1:20-cv-04494-GHW
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`CLASS ACTION
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`IN RE WELLS FARGO & COMPANY
`SECURITIES LITIGATION
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`LEAD PLAINTIFFS’ MEMORANDUM OF LAW IN SUPPORT OF THEIR
`MOTION FOR CLASS CERTIFICATION
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`Case 1:20-cv-04494-GHW Document 146 Filed 10/03/22 Page 2 of 34
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`I.
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`II.
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`TABLE OF CONTENTS
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`Page
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`PRELIMINARY STATEMENT .........................................................................................1
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`BACKGROUND OF INVESTORS’ CLAIMS ...................................................................5
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`III.
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`PROCEDURAL HISTORY.................................................................................................9
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`IV. ARGUMENT .....................................................................................................................11
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`A.
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`The Proposed Class Satisfies Rule 23(a) ...............................................................12
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`1.
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`2.
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`3.
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`4.
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`5.
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`Numerosity Is Established .........................................................................12
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`Commonality Is Established ......................................................................12
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`Typicality Is Established ............................................................................13
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`Adequacy Is Established ............................................................................14
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`Ascertainability Is Established ...................................................................15
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`B.
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`The Proposed Class Satisfies Rule 23(b)(3) ..........................................................16
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`1.
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`Common Questions of Law and Fact Predominate Over Individual
`Issues ..........................................................................................................16
`
`a.
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`b.
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`c.
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`The Fraud-On-The-Market Presumption Applies ..........................17
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`The Affiliated Ute Presumption of Reliance Also Applies ............22
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`Damages Will Be Calculated Using a Common
`Methodology That Is Consistent with the Class-wide
`Theory of Liability .........................................................................23
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`2.
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`A Class Action Is Superior to Other Available Methods for
`Resolving This Controversy ......................................................................24
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`C.
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`Lead Counsel Should Be Appointed Class Counsel ..............................................24
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`V.
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`CONCLUSION ..................................................................................................................25
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`Case 1:20-cv-04494-GHW Document 146 Filed 10/03/22 Page 3 of 34
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`CASES
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`TABLE OF AUTHORITIES
`
`Page(s)
`
`Affiliated Ute Citizens of Utah v. U.S.,
`406 U.S. 128 (1972) .......................................................................................................3, 22, 23
`
`In re Allergan PLC Sec. Litig.,
`2021 WL 4077942 (S.D.N.Y. Sept. 8, 2021) ................................................................... passim
`
`In re Alstom SA Sec. Litig.,
`253 F.R.D. 266 (S.D.N.Y. 2008) .............................................................................................12
`
`Amchem Prod., Inc., v. Windsor,
`521 U.S. 591 (1997) .................................................................................................................16
`
`Amgen Inc. v. Conn. Ret. Plans & Tr. Funds,
`568 U.S. 455 (2013) .....................................................................................................12, 16, 17
`
`In re Bank of Am. Corp. Sec., Derivative, & Emp. Ret. Income Sec. Act
`(“ERISA”) Litig.,
`281 F.R.D. 134 (S.D.N.Y. 2012) .............................................................................................14
`
`In re Barrick Gold Sec. Litig.,
`314 F.R.D. 91 (S.D.N.Y. 2016) .............................................................................13, 15, 17, 23
`
`Basic Inc. v. Levinson,
`485 U.S. 224 (1988) .............................................................................................................3, 17
`
`Cammer v. Bloom,
`711 F. Supp. 1264 (D.N.J. 1989) .................................................................................18, 19, 20
`
`City of Westland Police & Fire Ret. Sys. v. MetLife, Inc.,
`2017 WL 3608298 (S.D.N.Y. Aug. 22, 2017) .........................................................................11
`
`In re Dynex Cap., Inc. Sec. Litig.,
`2011 WL 781215 (S.D.N.Y. Mar. 7, 2011) .............................................................................25
`
`Erica P. John Fund, Inc. v. Halliburton Co.,
`563 U.S. 804 (2011) ...........................................................................................................16, 17
`
`In re Flag Telecom Holdings, Ltd. Sec. Litig.,
`574 F.3d 29 (2d Cir. 2009).......................................................................................................14
`
`In re Gentiva Sec. Litig.,
`281 F.R.D. 108 (E.D.N.Y. 2012) .............................................................................................15
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`
`
`In re Glob. Brokerage, Inc.,
`2021 WL 1160056 (S.D.N.Y. Mar. 18, 2021) .........................................................................19
`
`Halliburton Co. v. Erica P. John Fund, Inc.,
`573 U.S. 258 (2014) .................................................................................................................17
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`Hawaii Structural Ironworkers Pension Tr. Fund, Inc. v. AMC Ent. Holdings,
`Inc.,
`338 F.R.D. 205 (S.D.N.Y. 2021) .......................................................................................17, 23
`
`In re Indep. Energy Holdings PLC Sec. Litig.,
`210 F.R.D. 476 (S.D.N.Y. 2002) .............................................................................................11
`
`Krogman v. Sterritt,
`202 F.R.D. 467 (N.D. Tex. 2001) ......................................................................................18, 21
`
`Lapin v. Goldman Sachs & Co.,
`254 F.R.D. 168 (S.D.N.Y. 2008) .......................................................................................13, 15
`
`Martinek v. AmTrust Fin. Servs., Inc.,
`2022 WL 326320 (S.D.N.Y. Feb. 3, 2022) ..................................................................15, 21, 22
`
`Menaldi v. Och-Ziff Cap. Mgmt. Grp. LLC,
`328 F.R.D. 86 (S.D.N.Y. 2018) ...............................................................................................19
`
`Purple Mountain Trust v. Wells Fargo & Company,
`2022 WL 3357835 (N.D. Cal. Aug. 15, 2022) ................................................................ passim
`
`Rougier v. Applied Optoelectronics, Inc.,
`2019 WL 6111303 (S.D. Tex. Nov. 13, 2019) ........................................................................22
`
`In re Signet Jewelers Ltd. Sec. Litig.,
`2019 WL 3001084 (S.D.N.Y. July 10, 2019) .................................................................. passim
`
`Strougo v. Barclays PLC,
`312 F.R.D. 307 (S.D.N.Y. 2016) .............................................................................................22
`
`In re SunEdison, Inc. Sec. Litig.,
`329 F.R.D. 124 (S.D.N.Y. 2019) .............................................................................................25
`
`Teamsters Loc. 445 Freight Div. Pension Fund v. Bombardier, Inc.,
`546 F.3d 196 (2d Cir. 2008).....................................................................................................20
`
`Tellabs, Inc. v. Makor Issues & Rts., Ltd.,
`551 U.S. 308 (2007) .................................................................................................................11
`
`In re Teva Sec. Litig.,
`2021 WL 872156 (D. Conn. Mar. 9, 2021) .......................................................................20, 22
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`
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`Villella v. Chem. and Mining Co. of Chile Inc.,
`333 F.R.D. 39 (S.D.N.Y. 2019) ...............................................................................................22
`
`In re Vivendi Universal, S.A.,
`242 F.R.D. 76 (S.D.N.Y. 2007), aff’d sub nom. In re Vivendi, S.A. Sec. Litig.,
`838 F.3d 223 (2d Cir. 2016).....................................................................................................16
`
`In re Wells Fargo & Co. Sec. Litig.,
`2021 WL 4482102 (S.D.N.Y. Sept. 30, 2021) .............................................................5, 6, 7, 23
`
`Wilson v. LSB Indus., Inc.,
`2018 WL 3913115 (S.D.N.Y. Aug. 13, 2018) ...................................................................18, 21
`
`In re WorldCom, Inc. Sec. Litig.,
`219 F.R.D. 267 (S.D.N.Y. 2003) .......................................................................................14, 16
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`STATUTES
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`Securities Exchange Act of 1934 Section 10(b) ........................................................................4, 16
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`Securities Exchange Act of 1934 Section 20(a) ..........................................................................4, 9
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`OTHER AUTHORITIES
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`Fed. R. Civ. P. 23(a) ..........................................................................................................12, 15, 16
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`Fed. R. Civ. P. 23(b) .............................................................................................................. passim
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`Fed. R. Civ. P. 23(g) ............................................................................................................4, 24, 25
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`H.R. Conf. Rep. No. 104-369, 104th Cong., 1st Sess. (1995), reprinted in 1995
`U.S.C.C.A.N. 730 ....................................................................................................................15
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`Case 1:20-cv-04494-GHW Document 146 Filed 10/03/22 Page 6 of 34
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`TABLE OF DEFINED TERMS
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`Term
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`Meaning
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`[Proposed] Class
`
`¶
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`All persons or entities who purchased or otherwise acquired the
`common stock of Wells Fargo between May 30, 2018 and March 12,
`2020, inclusive (the “Class Period”), and were damaged thereby.
`Excluded from the Class are Defendants; officers and directors of
`Defendant Wells Fargo; Defendants’ immediate family members, legal
`representatives, heirs, successors or assigns; and any entity in which
`any Defendant has or had a controlling interest.
`
`Consolidated Class Action Complaint for Violations of Federal
`Securities Laws, In re Wells Fargo & Company Securities Litigation,
`No. 20-cv-04494 (GHW), filed on November 9, 2020 (ECF No. 74)
`(the “Complaint”).
`
`2018 CFPB Consent
`Order
`
`In the Matter of Wells Fargo Bank, N.A., File No. 2018-BCFP-0001,
`Consent Order (Apr. 20, 2018).
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`2018 FRB Consent
`Order
`
`In the Matter of Wells Fargo Bank, San Francisco, California, CFPB
`No. 18-007-B-HC, Order to Cease and Desist Issued Upon Consent
`Pursuant to the Federal Deposit Insurance Act, as Amended (Feb. 2,
`2018).
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`2018 OCC Consent
`Order
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`In the Matter of: Wells Fargo Bank, N.A. Sioux Falls, South Dakota,
`AA-EC-2018-16, Consent Order For A Civil Money Penalty (Apr. 20,
`2018).
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`Bernstein Litowitz
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`Bernstein Litowitz Berger & Grossmann LLP, Court-appointed co-
`Lead Counsel.
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`CFPB
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`Consumer Financial Protection Bureau.
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`Class Period
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`May 30, 2018 through March 12, 2020, inclusive.
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`Cohen Milstein
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`Cohen Milstein Sellers & Toll PLLC, Court-appointed co-Lead
`Counsel.
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`Consent Orders
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`2018 FRB Consent Order, 2018 CFPB Consent Order, and 2018 OCC
`Consent Order, collectively.
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`DOJ
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`Duke
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`U.S. Department of Justice.
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`Elizabeth “Betsy” Duke, named Defendant, former Director at Wells
`Fargo and former Chairwoman of Wells Fargo’s Board.
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`Term
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`Ex.
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`Meaning
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`Exhibits to the Declaration of John C. Browne and Laura H. Posner in
`Support of Lead Plaintiffs’ Motion for Class Certification.
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`Federal Reserve
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`Board of Governors of the Federal Reserve System.
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`Hartzmark Rep.
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`The accompanying Expert Report of Michael L. Hartzmark, Ph.D.
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`Handelsbanken
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`Handelsbanken Fonder AB.
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`HFSC
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`U.S. House of Representative Financial Services Committee.
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`HFSC Rpt.
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`U.S. House of Representatives, Committee on Financial Services, The
`Real Wells Fargo: Board & Management Failures, Consumer Abuses,
`and Ineffective Regulatory Oversight, Report Prepared by the Majority
`Staff of the Committee on Financial Services (116th Cong. Mar. 2020).
`
`Joint Decl.
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`The accompanying Declaration of John C. Browne and Laura H.
`Posner in Support of Lead Plaintiffs’ Motion for Class Certification.
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`Lead Plaintiffs
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`Handelsbanken, Mississippi PERS, Rhode Island, and Louisiana
`Sheriffs, collectively.
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`Louisiana Sheriffs
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`Louisiana Sheriffs’ Pension & Relief Fund.
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`Mississippi PERS
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`Public Employees’ Retirement System of Mississippi.
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`NYSE
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`OCC
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`Parker
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`New York Stock Exchange.
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`The Office of the Comptroller of the Currency.
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`C. Allen Parker, named Defendant, former Senior Executive Vice
`President and General Counsel of Wells Fargo.
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`PSLRA
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`Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4.
`
`Regulators
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`Well Fargo’s three primary regulators – Board of Governors of the
`Federal Reserve System, the Office of the Comptroller of the Currency,
`and the Consumer Financial Protection Bureau.
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`Rhode Island
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`State of Rhode Island, Office of the General Treasurer, on behalf of the
`Employees’ Retirement System of Rhode Island.
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`Scharf
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`Charles W. Scharf, current CEO and President of Wells Fargo.
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`Shrewsberry
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`John R. Shrewsberry, named Defendant, former Senior Executive Vice
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`Case 1:20-cv-04494-GHW Document 146 Filed 10/03/22 Page 8 of 34
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`Term
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`Meaning
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`President and CFO of Wells Fargo.
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`Sloan
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`Timothy J. Sloan, named Defendant, former CEO and President of
`Wells Fargo.
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`Wells Fargo or the
`Bank
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`Wells Fargo & Company.
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`Court-appointed Lead Plaintiffs Handelsbanken, Mississippi PERS, Rhode Island, and
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`Louisiana Sheriffs (collectively, “Lead Plaintiffs” or “Plaintiffs”) respectfully submit this
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`memorandum of law in support of their motion to (i) certify the action as a class action, (ii) appoint
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`Plaintiffs as Class Representatives, and (iii) appoint Lead Counsel Bernstein Litowitz and Cohen
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`Milstein as Class Counsel.
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`I.
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`PRELIMINARY STATEMENT
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`This securities class action is ideally suited for class treatment under Rule 23. The action
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`arises from Defendants’ misstatements to investors concerning Wells Fargo’s purported
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`compliance with three consent orders (“Consent Orders”) that the Bank was required to enter into
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`before the beginning of the Class Period to rectify systemic and egregious corporate
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`mismanagement and fraud. Defendants’ common course of deceptive conduct harmed Plaintiffs
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`and the proposed Class. Common questions that can be answered by class-wide proof
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`predominate, and the class mechanism is the superior means of resolving Plaintiffs’ claims. And,
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`the proposed class representatives are sophisticated institutional investors, exactly whom Congress
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`intended to lead securities class actions.1
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`As the Complaint alleges and the evidence has shown, Defendants made class-wide
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`misrepresentations concerning the Bank’s purported compliance and progress with satisfying its
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`obligations under the Consent Orders. For example, the Bank represented that it had “plans in
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`place” to comply with the Consent Orders, was “executing” on those plans, the asset cap would be
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`timely lifted, and “investors know everything that’s material that we know” when, in reality, the
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`Regulators were privately telling Wells Fargo that the Bank’s compliance plans were so
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`1 Unless otherwise noted, all emphasis is added, and internal citations, punctuation, and subsequent
`history are omitted.
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`Case 1:20-cv-04494-GHW Document 146 Filed 10/03/22 Page 10 of 34
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`“materially incomplete” and “insufficient” that the Regulators could not even review them.
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`Indeed, then-CEO Defendant Timothy J. Sloan (“Sloan”) testified before the House Financial
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`Services Committee (“HFSC”) that the Bank was “executing [its] plans[s]” and was “in
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`compliance with th[e] plans” but omitted that, just the day before, the Federal Reserve formally
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`rejected the Bank’s proposed plan. This deception resulted in the HFSC Committee Chairwoman
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`referring Sloan to the U.S. Department of Justice regarding a criminal violation of lying to
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`Congress. ¶141.
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`Ultimately, investors learned the truth through a series of disclosures in 2019 and 2020
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`concerning the Bank’s compliance failures, including the forced resignations of two Wells Fargo
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`directors, damning congressional hearings and reports, and the Bank’s admissions that it had made
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`“some terrible mistakes and have not effectively addressed our shortcomings”—disclosures that
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`damaged investors by causing substantial declines in the price of Wells Fargo stock.
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`Like most securities fraud class actions, this case is ideally suited for class certification
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`because it arises from common public misrepresentations and omissions that harmed tens of
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`thousands of investors in a like manner. As courts have repeatedly explained, “securities fraud
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`suit[s]” are “particularly well suited to class treatment.” In re Allergan PLC Sec. Litig., 2021 WL
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`4077942, at *1 (S.D.N.Y. Sept. 8, 2021). In fact, multiple courts have previously certified
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`securities cases against Wells Fargo, including just six weeks ago in Purple Mountain Trust v.
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`Wells Fargo & Company, 2022 WL 3357835 (N.D. Cal. Aug. 15, 2022) (“Purple Mountain”).
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`The proposed Class readily satisfies Rule 23’s requirements.
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`First, numerosity is easily satisfied because there are thousands of Class members. There
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`were approximately 4.1 billion shares of Wells Fargo common stock issued and outstanding during
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`the Class Period, and an average of 104.9 million shares traded weekly.
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`Second, this Action involves many common issues of law and fact, including whether
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`(i) Defendants’ statements and omissions concerning the Bank’s compliance with the Consent
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`Orders, and the timing in which the Federal Reserve would lift the asset cap were false or
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`misleading; (ii) Defendants acted with scienter in making these statements; (iii) Defendants’
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`misstatements and omissions caused investors’ losses; (iv) Defendants Sloan, Shrewsberry,
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`Parker, and Duke controlled Wells Fargo; and (iv) the Class suffered damages.
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`Third, the typicality requirement is easily satisfied because Lead Plaintiffs were harmed
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`by the same alleged false and misleading statements and omissions as other Class members.
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`Fourth, Lead Plaintiffs are sophisticated institutional investors whose interests in
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`prosecuting this Action are squarely aligned with those of the Class, and who will fairly and
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`adequately protect the interests of the Class. Additionally, Lead Plaintiffs’ chosen counsel are
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`among the most experienced class action law firms in the country.
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`Fifth, the proposed Class is readily ascertainable, as it is defined by objective criteria and
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`definite boundaries, including the defined class of purchasers of Wells Fargo common stock.
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`Sixth, this Action readily satisfies Rule 23(b)(3)’s predominance requirement. Common
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`issues of law and fact abound—including concerning Defendants’ unitary course of conduct,
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`falsity, materiality, scienter, and loss causation—and are subject to common proof. Moreover,
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`class-wide reliance is presumed where, as here, Defendants’ stock trades on an efficient market
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`and Defendants failed to disclose facts they were under a duty to disclose. See Basic Inc. v.
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`Levinson, 485 U.S. 224, 242 (1988) (adopting fraud-on-the-market presumption); Affiliated Ute
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`Citizens of Utah v. U.S., 406 U.S. 128, 153 (1972) (adopting presumption of reliance for
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`omissions). As confirmed in the expert report of Dr. Michael Hartzmark, the market for Wells
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`Case 1:20-cv-04494-GHW Document 146 Filed 10/03/22 Page 12 of 34
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`Fargo common stock, which trades on the NYSE, is efficient. Further, damages can be calculated
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`based on a class-wide methodology that is consistent with Plaintiffs’ theory of liability.
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`Seventh, a class action is the “superior” method of resolving this dispute under Rule
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`23(b)(3) because many thousands of investors suffered damages as a result of Defendants’ alleged
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`misconduct; individual actions are unworkable due to litigation costs; it is desirable to hear all
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`such claims in this court; and there is no difficulty in maintaining this litigation as a class action.
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`Finally, pursuant to Rule 23(g), Lead Counsel should be appointed as Class Counsel
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`because they are well qualified to prosecute this Action on behalf of Lead Plaintiffs and the Class.
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`The recent grant of class certification in a different securities case against Wells Fargo
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`underscores the propriety of class certification here. In Purple Mountain, the Bank did not even
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`dispute many of the Rule 23 elements, including numerosity, typicality, adequacy, commonality,
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`superiority, and certain predominance factors. The court found all elements of class certification
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`to be met and certified the class of Wells Fargo common stock purchasers in a period preceding
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`the proposed Class Period in this case. Purple Mountain, 2022 WL 3357835, at *1-6. Here, too,
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`there can be no meaningful dispute that class treatment is appropriate.
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`Lead Plaintiffs respectfully request that the Court certify the following proposed Class:
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`All persons or entities who purchased or otherwise acquired the common stock of
`Wells Fargo between May 30, 2018 and March 12, 2020, inclusive (the “Class
`Period”), and were damaged thereby.2
`
`Lead Plaintiffs further respectfully request that the Court appoint Lead Plaintiffs as Class
`
`Representatives and appoint Lead Counsel as Class Counsel.
`
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`2 Excluded from the proposed Class are Defendants; officers and directors of Defendant Wells
`Fargo; Defendants’ immediate family members, legal representatives, heirs, successors or assigns;
`and any entity in which any Defendant has or had a controlling interest.
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`Case 1:20-cv-04494-GHW Document 146 Filed 10/03/22 Page 13 of 34
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`II.
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`BACKGROUND OF INVESTORS’ CLAIMS
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`This is a securities class action brought under Sections 10(b) and 20(a) of the Exchange
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`Act on behalf of all persons or entities who purchased or otherwise acquired the common stock of
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`Wells Fargo between May 30, 2018 and March 12, 2020, inclusive, and were damaged thereby.3
`
`Prior to the beginning of the Class Period, Wells Fargo repeatedly engaged in serious,
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`widespread misconduct in its consumer banking division, including by opening deposit and credit
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`card accounts without authorization to rack up fees and increase assets. ¶¶37-41. This misconduct
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`resulted in severe and unprecedented sanctions against the Bank by the OCC and CFPB. Id.
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`Less than a year later, in 2018, the Federal Reserve discovered that the Bank’s illegal
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`practices were even more pervasive than originally thought and, as a result, required Wells Fargo
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`to enter into a consent order to comprehensively overhaul its governance and risk management
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`processes. ¶¶42-44. Several months later, the CFPB and OCC found that the Bank had continued
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`to operate in a “reckless, unsafe or unsound” manner that violated federal banking and lending
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`laws and imposed two additional coordinated consent orders and fined the Bank over $1 billion
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`for its continued failure to correct its risk management and oversight. ¶59. Not only was the OCC
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`and CFPB’s $1 billion fine historic, the Federal Reserve backed its consent order with an
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`unprecedented “asset cap” that prohibited the Bank from growing its assets until it satisfied the
`
`Federal Reserve’s requirements—a punishment that market commentators referred to as the “‘Fear
`
`of God’ Penalty.” ¶58.
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`By the beginning of the Class Period, Wells Fargo’s ability to satisfy the requirements
`
`
`3 The Complaint alleged a class period from February 2, 2018 through March 12, 2020 (¶270), but
`at this time Lead Plaintiffs seek certification of a class of investors from May 30, 2018 through
`March 12, 2020, in accordance with the Court’s ruling on the motion to dismiss. See In re Wells
`Fargo & Co. Sec. Litig., 2021 WL 4482102, at *12-13 (S.D.N.Y. Sept. 30, 2021).
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`imposed by the Consent Orders was the single most pressing concern for the Bank’s investors. As
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`described in a February 4, 2018 Bloomberg report, Wells Fargo’s compliance was imperative, as
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`the Bank had “no other choice if it wants to escape the regulator’s wrath.” ¶45. And Defendant
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`Duke admitted in an internal February 19, 2018 email that Wells Fargo’s “credibility and perhaps
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`even viability as a company is dependent on successfully exiting these consent orders.” ¶66.
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`To do so, the Consent Orders required Wells Fargo to remedy its compliance deficiencies
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`in three distinct stages. In Stage 1, the Bank was required to submit a compliant plan to the
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`Regulators; in Stage 2, the Bank would implement the plans after they had been approved by the
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`Regulators; in Stage 3, the Bank was required to validate that the approved plans were effectively
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`implemented and provide that assessment to the Regulators. ¶¶48-51, 60-65.
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`During the Class Period, Defendants made repeated false positive statements and omitted
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`to disclose critical information to investors about the Bank’s compliance with the Consent Orders.
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`For example, the Bank told investors it had the required “plans in place” and was “executing” and
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`“implementing” those plans under the Consent Orders. See ¶¶149, 152, 157, 163, 167, 178, 182,
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`198, 208. In doing so, Defendants conveyed to investors that the Bank had successfully completed
`
`Stage 1 and had entered Stage 2. For instance, on June 13, 2018, when asked “what’s left to do
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`for the consent order,” Defendant Shrewsberry stated, “It’s the last mile of knitting all of this
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`together.” ¶¶78, 149-50; see also In re Wells Fargo & Co. Sec. Litig., 2021 WL 4482102, at *13-
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`14 (holding Plaintiffs alleged there was “no basis” for this statement). Similarly, on January 15,
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`2019, Defendant Sloan told investors, “[W]e’re in complete agreement with the Fed about what
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`needs to be done, and we’re in the midst of implementing that.” ¶¶86, 167; see also In re Wells
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`Fargo, 2021 WL 4482102, at *18 (holding Plaintiffs alleged “there was no basis for [Sloan’s]
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`claim that the Bank knew what needed to be done and was implementing it”).
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`Case 1:20-cv-04494-GHW Document 146 Filed 10/03/22 Page 15 of 34
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`Defendants also falsely touted the Bank’s purported transparency regarding the status of
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`its compliance with the 2018 Consent Orders. For instance, on May 30, 2018, when asked “where
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`you are” under the Federal Reserve’s Consent Order, Defendant Shrewsberry stated, “our investors
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`know everything that’s material that we know.” ¶¶76, 146; see also In re Wells Fargo, 2021 WL
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`4482102, at *13 (holding that this statement was actionable because Shrewsberry “promised
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`investors that they knew all material information, which was false”).
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`Finally, Defendants repeatedly falsely claimed that, in light of the Bank’s progress, the
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`asset cap would be lifted on an expected timeframe and in the near term. For instance, Defendants
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`stated there was “no change in the update from Investor Day” with respect to the asset cap and
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`“our expectation is that [it will be lifted] sometime in the first half of next year.” ¶79; see also In
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`re Wells Fargo, 2021 WL 4482102, at *14.
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`In reality, and in direct conflict with Defendants’ positive statements, the Regulators
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`rebuked and repeatedly rejected Wells Fargo’s proposed plans to satisfy the 2018 Consent Orders.
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`See ¶¶69-72, 75, 80-84, 87, 89, 93-94, 105, 116. For example, on April 3, 2018, the Federal
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`Reserve told Defendant Duke that the Bank’s Stage 1 Plan was deficient and “missing major
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`components such as plans to address the company’s deficiencies in operational and compliance
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`risk management.” ¶70. On May 7, 2018, in a letter to Defendants Sloan and Duke, the Federal
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`Reserve wrote that the Bank’s submission was so “materially incomplete” and “insufficient” that
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`it “cannot be evaluated by [Federal Reserve] staff for [its] adequacy” and rejected the Bank’s
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`proposed Stage 1 Plan. ¶71.
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`Similarly, on July 24, 2018, the OCC rejected the Bank’s proposed Stage 1 Plan, writing
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`to the Bank’s top executives that “[d]espite the OCC including detailed requirements and
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`expectations . . . the bank’s submission response lacks substance and detail in a number of areas.”
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`Case 1:20-cv-04494-GHW Document 146 Filed 10/03/22 Page 16 of 34
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`¶80. The Bank admitted to the OCC that it knew that the proposed Stage 1 Plan was only a “work
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`in progress” and a “plan for a plan.” ¶83. The OCC again formally rejected the Bank’s proposed
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`Stage 1 Plan on November 21, 2018 (see ¶87) and, on March 11, 2019, the Federal Reserve again
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`rejected the Bank’s proposed Stage 1 Plan as “materially incomplete” and suffering from
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`“pervasive inaccuracies.” ¶93.
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`The next day, March 12, 2019, Defendant Sloan testified before the HFSC regarding the
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`Bank’s progress under the 2018 Consent Orders. ¶92. Defendant Sloan testified that the Bank
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`was “executing [its] plan[s],” was “in compliance with th[e] plans,” and had “plans in place” for
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`the 2018 Consent Orders while omitting that, the day before, the Federal Reserve formally rejected
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`the Bank’s Stage 1 Plan. ¶¶92-95. Shortly after that testimony, Sloan personally—but
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`unbeknownst to investors—“called the Federal Reserve to apologize for his mischaracterizations
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`in his statements during the hearings and to the media.” ¶96. In addition, just one day after Sloan’s
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`testimony, the OCC staff concluded that Sloan’s testimony was false. ¶98.
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`The truth was revealed over a series of disclosures starting on January 15, 2019. On that
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`day, Defendants announced that the asset cap imposed by the Federal Reserve was likely to remain
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`“through the end of 2019”—more than a year longer than originally represented. ¶¶238-39. Then,
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`on April 12, 2019, Defendants disclosed that it would not meet the Federal Reserve’s requirements
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`and so the asset cap would not be lifted by the end of 2019. ¶¶244-45. And on January 14, 2020,
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`Scharf admitted that the Bank still had a “great deal” of work to do to comply with the Consent
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`Orders, and conceded that “we made some terrible mistakes and have not effectively addressed
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`our shortcomings.” ¶¶251-55.
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`On March 4 and 5, 2020, the HFSC issued scathing reports detailing how much work Wells
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`Fargo had left in the regulatory process, the Bank’s chronic failure to submit compliant Stage 1
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`Case 1:20-cv-04494-GHW Document 146 Filed 10/03/22 Page 17 of 34
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`Plans to its Regulators, and the Regulators’ repeated warnings of future enforcement actions due
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`to the Bank’s ongoing non-compliance. ¶258. On March 10, 2020, Chairwoman Waters published
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`a letter requesting that the DOJ investigate Defendant Sloan for knowingly providing false and
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`misleading statements during his March 12, 2019 public testimony that the Bank was in
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`compliance with the Consent Orders. ¶259.
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`Finally, on March 10 and March 11, 2020, Scharf, Defendant Duke, and Director James
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`Quigley testified before Congress in public sessions closely watched by investors and analysts.
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`During those sessions, Defendant Duke revealed for the first time that the Bank’s extensions and
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`missed deadlines for the Stage 1 Plan submissions had raised “concerns for the Board” and were
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`a “red flag.” ¶260. In addition, Defendant Duke admitted that vast portions of the Stage 1 Plan
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`for the Federal Reserve Consent Order were “currently under resubmission.” Id. In light of the
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`new information disclosed as part of the Congressional hearings, analysts reviewed their ratings
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`of Wells Fargo, concluding that “extremely harsh” questioning by legislators revealed that the
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`Bank was “still trying to submit plans for h