The Blubber

A U.S. judge has ordered Wells Fargo, $WFC, to face a lawsuit alleging it defrauded shareholders by proclaiming its commitment to hiring diversity, even as it conducted sham job interviews of non-white and female applicants it had no plans to hire, per Reuters.

A U.S. judge has ruled that Wells Fargo (WFC.N) must face a lawsuit accusing the bank of misleading shareholders by claiming a commitment to diversity in hiring while allegedly conducting sham job interviews with non-white and female applicants who were never intended to be hired.

U.S. District Judge Trina Thompson in San Francisco, who had previously dismissed a version of the lawsuit last August, found both direct and indirect evidence suggesting that the San Francisco-based bank aimed to deceive shareholders regarding its hiring practices. The judge rejected arguments that there was insufficient evidence of widespread fake interviews or that top officials, including CEO Charles Scharf, were unaware of the practice.

The shareholders contest 11 statements from the bank that praised a policy adopted in March 2020, which mandated that at least 50% of candidates interviewed for positions with salaries of at least $100,000 be minorities, women, or individuals from other disadvantaged groups. The lawsuit cites interviews with former employees, an internal whistleblower email, and the sudden retirement of a senior wealth manager who allegedly pressured the whistleblower to conduct fake interviews.

"The employee-submitted complaints, the peculiar timing of the manager's departure, and the defendants' demonstrated focus on diversity issues support a strong inference of fraudulent intent that is cogent and at least as compelling as an opposing inference that the defendants remained oblivious," Thompson wrote.

Wells Fargo stated that it would continue to defend itself against the lawsuit. The bank noted that both the Department of Justice and the Securities and Exchange Commission had closed investigations into its hiring practices without taking action. "Wells Fargo is deeply dedicated to diversity, equity, and inclusion and does not tolerate discrimination in any part of our business," the bank added.

The shareholders' lawyers did not immediately respond to requests for comment.

Since 2016, Wells Fargo, the fourth-largest bank in the U.S., has faced numerous complaints and public criticism over its business practices and remains under a Federal Reserve cap on asset growth. The bank's share price dropped 10.2% over two days in June 2022, erasing more than $17 billion in market value, after the New York Times reported on the Justice Department's investigation.

The case is SEB Investment Management AB et al v. Wells Fargo & Co, U.S. District Court, Northern District of California, No. 22-03811.