Class of shareholders alleges misleading statements in connection with loans made under the PPP, the program created by the CARES Act to assist small businesses during the COVID-19 crisis.
Wells Fargo is one of the first lenders to face a shareholder class action lawsuit over its handling of loans under the new Paycheck Protection Program (PPP). In a newly-filed action, shareholders claim, among other things, that the bank improperly allocated government-backed loans under the PPP and had inadequate controls in place to prevent the misallocation (Ma v. Wells Fargo & Co., June 4, 2020).
The CARES Act authorized up to $349 billion to be loaned out under the PPP to help small businesses pay up to eight weeks of payroll costs, interest on mortgages, rent, and utilities. In early April, Wells Fargo announced that it had received strong interest in the PPP and was planning to distribute $10 billion to small business customers under the program. On April 8, Wells Fargo stated that it would expand its participation in the PPP after the Federal Reserve agreed to allow the bank to exceed the asset cap imposed on it after the fake account scandal.
Allegations. The lawsuit is filed on behalf of all shareholders that bought Wells Fargo shares between April 5 and May 5, 2020. They allege that Wells Fargo made materially false and misleading statements regarding the company’s business, operational and compliance policies.
Specifically, they claim that the bank made false or misleading statements and/or failed to disclose that it improperly allocated loans under the PPP, and/or had inadequate controls in place to prevent the misallocation. They also claim that Wells Fargo made misleading statements about its increased litigation risk with respect to PPP allocation, as well as increased regulatory scrutiny and/or potential enforcement actions.
Prior lawsuit. The plaintiffs further noted that Wells Fargo is reportedly already facing a PPP-related lawsuit alleging that it unfairly prioritized businesses seeking larger loans to maximize its profits. The Small Business Administration requires that PPP loans be processed on a first-come, first-served basis. The plaintiffs claim that after news of the previous lawsuit was released, Wells Fargo’s stock price fell more than 5 percent over two trading days.
The plaintiffs also cited Wells Fargo’s May 5 quarterly report on Form 10-Q in which the bank disclosed both PPP-related lawsuits against it and formal and informal inquiries from federal and state agencies regarding its offering of PPP loans. After the filing of the Form 10-Q, Wells Fargo’s stock price fell by more than 6 percent over two trading days, according to the plaintiffs.
The plaintiffs claim that as a result of the decline in the market value of Wells Fargo’s securities, they suffered significant losses and damages. They allege violations of 1934 Act Section 10(b) and Rule 10b-5 by Wells Fargo, as well as violations of 1934 Act Section 20(a) by the bank’s CEO and CFO.
The case is No. 3:20-cv-03697.
Attorneys: Jennifer Pafiti (Pomerantz LLP) for Guofeng Ma.
Companies: Wells Fargo & Co.
MainStory: TopStory Covid19 FraudManipulation FormsFilings PublicCompanyReportingDisclosure CaliforniaNews
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