By Jonathan Stempel
NEW YORK (Reuters) -Wells Fargo & Co has agreed to pay $1 billion to settle a lawsuit accusing it of defrauding shareholders about its progress in recovering from a series of scandals over its treatment of customers.
U.S. District Judge Gregory Woods in Manhattan federal court granted preliminary approval on Tuesday to the all-cash settlement, which had been filed the night before.
The dollar amount had been suggested by a mediator. Woods scheduled a Sept. 8 hearing to consider final approval.
Wells Fargo has operated since 2018 under consent orders from the Federal Reserve and two other financial regulators requiring that it improve governance and oversight.
The fourth-largest U.S. bank is also subject to an asset cap by the Fed, limiting its growth and its ability to compete with larger rivals JPMorgan Chase & Co, Bank of America Corp and Citigroup Inc.
Shareholders accused Wells Fargo of overstating how well it was complying with those orders, and said the bank’s market value fell by more than $54 billion over two years ending in March 2020 as the shortcomings became known.
The San Francisco-based bank denied wrongdoing, and settled to eliminate the burden and cost of litigation, court papers show.
“While we disagree with the allegations in this case, we are pleased to have resolved this matter,” Wells Fargo said in a statement.
Lawyers for the plaintiffs may seek up to 19% of the settlement fund for legal fees.
Wells Fargo has since 2016 paid or set aside several billion dollars to resolve regulatory probes and litigation over its business practices.
These practices included opening about 3.5 million accounts without customer permission, and charging hundreds of thousands of borrowers for auto insurance they did not need.
Chief Executive Charlie Scharf has said repairing the 171-year-old bank founded by Henry Wells and William Fargo has taken longer than he expected when he took over in 2019.
“When I arrived, we did not have the culture, effective processes, or appropriate management oversight in place to remediate weaknesses on a timely basis,” he said in his March 3 letter to shareholders. “Today, we approach these issues differently.”
The case is In re Wells Fargo & Co Securities Litigation, U.S. District Court, Southern District of New York, No. 20-04494.
(Reporting by Jonathan Stempel in New York; Editing by Simon Cameron-Moore and Nick Zieminski)