(Bloomberg) -- Wells Fargo & Co.’s board was accused of breaching its duty to investors in a lawsuit that also names Carrie Tolstedt, the executive whose community banking unit created unauthorized customer accounts to reap extra fees.
The suit adds to the mounting pressure on Wells Fargo and Chief Executive Officer John Stumpf since the bank agreed Sept. 8 to pay $185 million in fines and penalties to resolve regulators’ allegations it created more than 2 million deposit and credit-card accounts without customers’ authorization. Analysts and congressional leaders have called for the bank to claw back Tolstedt’s compensation and for Stumpf to resign.
Board members’ refusal to scale back Tolstedt’s retirement benefits is “a breach of their fiduciary duties to shareholders," according to the complaint, which may be the first such investor case. The suit, in which Stumpf is a defendant along with Tolstedt and the board, asks a San Francisco state court judge to bar the bank from making additional payments to Tolstedt before her retirement slated for the end of the year.
The bank is accused in the suit of blaming the scandal on about 5,300 low-level employees who worked for Tolstedt by firing them after the claims were made public, while refusing to hold executives responsible.
“Tolstedt has been permitted to retire with dignity and a giant sum of money -- ushered off into the sunset with glowing praise and a retirement package worth in excess of $120 million," according to the complaint. “It doesn’t have to be this way."
During her three-decade career at Wells Fargo and its predecessors, Tolstedt received about $44 million in shares, $34 million in vested options and still more from cash bonuses and stock sales. The bank’s clawback policy, like that of most U.S. companies, doesn’t allow it to go after those assets unless there’s a financial restatement. When the damage is reputational harm, only unvested stock awards can be recouped -- in the case of Tolstedt, 56, whose retirement was announced in July, that’s about $19 million.
Oscar Suris, a Wells Fargo spokesman, declined to immediately comment on the lawsuit filed Wednesday in San Francisco state court.
The lawsuit, a so-called derivative case seeking damages on behalf of the company, was filed by the Vladimir Gusinsky Revocable Trust. A copy of the complaint was provided by the trust’s law firm and wasn’t immediately available in court records.
Wells Fargo was sued last week in federal court in Utah by customers seeking to represent others in a class action. They said the abuses were the result of management’s push to increase the number of accounts held by clients to an average of eight, which was part of the lender’s “gr-eight” initiative.
Stumpf reinforced the bank’s position on Tuesday when he told the Senate Banking Committee in Washington that the malfeasance was the fault of the employees no longer with the company, not his own or Tolstedt’s. Stumpf received bipartisan backlash from committee members who blasted the executive’s handling of the sandal. They included Massachusetts Democrat Elizabeth Warren who called for his resignation.
Well Fargo reached the settlement with the U.S. Consumer Financial Protection Bureau after a review found employees opened accounts and credit cards without customers’ permission. Stumpf told lawmakers he was “deeply sorry” and detailed a five-year timeline of attempts made by the bank to deter misconduct.
“The Wells Fargo board is actively engaged in this issue,” Stumpf, 63, said in his prepared remarks. “The board has the tools to hold senior management accountable, including me and Carrie Tolstedt, the former head of our retail banking business. Any board actions taken with our named executive officers will be appropriately disclosed, and I want to be clear on this, I will respect and accept the decision of the board.”
The case is Vladimir Gusinsky Revocable Trust v. Tolstedt, CGC 16 554407, Superior Court of California, County of San Francisco