By Jonathan Stempel
Wells Fargo won the dismissal of a lawsuit accusing the fourth-largest U.S. bank of defrauding shareholders by touting its commitment to hiring diversity while its managers were conducting sham interviews of non-white and female job candidates.
In a decision on Friday, U.S. District Judge Trina Thompson in San Francisco said that while reasonable investors would not expect Wells Fargo to conduct interviews for jobs that had already been filled, shareholders failed to show that fake interviews were widespread or even took place.
Thompson also found no proof that Chief Executive Charlie Scharf and two senior diversity executives should have known about the sham interviews, or that Wells Fargo's years of costly scandals including from the creation of "fake" customer accounts should have put them on alert.
The plaintiffs in the proposed class action must "allege more than that the sham interviews were an open secret," Thompson wrote. "While Wells Fargo's history provides some context for the allegedly misleading statements, it is not sufficient to confer [intent to defraud]."
Lawyers for the plaintiffs did not immediately respond on Monday to requests for comment. Wells Fargo did not immediately respond to similar requests.
The plaintiffs had claimed that San Francisco-based Wells Fargo inflated its stock price through nine public statements discussing its "diverse slates" guidelines.
Adopted in 2020, the policy called for at least 50% of candidates interviewed for jobs paying at least $100,000 to be minorities, women or people in other disadvantaged groups.
Wells Fargo's share price fell 10.2% over two days in June 2022, wiping out more than $17 billion of market value, after the New York Times said federal prosecutors in Manhattan had begun a criminal probe into the sham interviews. The probe has yet to result in charges or a resolution.
The case is SEB Investment Management AB et al v Wells Fargo & Co, U.S. District Court, Northern District of California, No. 22-03811.
(Editing by Kirsten Donovan)