Wells Fargo and its CEO as well as two other executives must face a securities class action lawsuit alleging the bank misled investors over its efforts to increase the diversity of its higher-paid workforce.
A federal district court in California rejected the bank’s motion to dismiss the case July 29, saying plaintiffs sufficiently alleged the bank touted its effort to improve the diversity of its pool of candidates for jobs paying $100,000 or more while knowing the initiative was mainly window dressing.
“Wells Fargo conducted widespread ‘sham interviews’ of diverse candidates in which Wells Fargo interviewed diverse candidates that would not be hired,” the court said, referencing the plaintiffs’ allegations, and “sought out diverse candidates to interview for positions that had already been filled, or for which the candidate was not qualified for and could not receive an offer.”
In about a dozen communications, including in filings with the Securities and Exchange Commission and in public remarks, according to the ruling, the bank put a spotlight on its effort on behalf of diversity, equity and inclusion objectives to fill its ranks with more minorities, women, persons with disabilities and those who identify as LGBTQ. But the effort was mainly for show, the plaintiffs alleged.
Its goal for each position paying $100,000 or more was to have at least half of the applicants drawn from a pool of diverse candidates, but for much of the effort the 50% goal was an end in itself; hiring managers brought in candidates for jobs that were already filled or who were not qualified for the position they were applying for.
One person familiar with the effort claimed that “70-80% of all open positions in commercial banking” involved sham interviews.
In one case, the person selected three candidates with the “necessary banking and government institutional experience,” according to the ruling, but also “selected a candidate who had no direct banking experience to comply with the requirement” because she “could not find enough qualified, diverse candidates.”
The plaintiffs alleged the practice was widespread and the bank’s CEO, Charles Scharf, and other executives, were kept informed about it.
“Plaintiffs’ allegations that Scharf and [another executive] received communications via their individual email addresses, or the board email address, suggest that they were aware of these issues,” the court said.
Wells Fargo had previously won a motion to dismiss the allegations but in their amended complaint, plaintiffs included additional material, including documents incorporated into the complaint by reference, to sufficiently plead material misrepresentation and scienter.
The case is the latest of many involving DEI issues that has bedeviled the bank in the last decade.
Among others, according to the ruling, Wells Fargo paid $32 million to settle a sex discrimination case brought by 1,200 female financial advisors for unequal pay and promotional bias, $184 million to a class of Black and Hispanic debtors to settle claims of unfair and discriminatory treatment in the home lending division, and $36 million to settle an action brought by Black financial advisors who alleged segregation in the workforce and disparate treatment compared to their white counterparts.
It also entered into a conciliation agreement with the Department of Justice for failure to provide accommodations to disabled employees, and in 2019 and 2020, it entered a conciliation agreement with the Department of Labor in response to allegations of discrimination against minority job applicants.
In a statement emailed to ESG Dive sister publication Legal Dive, the bank said it is deeply dedicated to diversity, equity and inclusion and does not tolerate discrimination in any part of our business. “The claims in this lawsuit have no merit, and we will continue to defend ourselves against them,” the bank said. “Additionally, the United States Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have closed without taking action their investigations regarding the company’s hiring practices related to diversity, as previously disclosed in the company’s 2023 10-K.”
