A federal judge in California has dismissed a securities fraud class action against Wells Fargo & Co. regarding its diversity hiring practices. The lawsuit alleged that the bank and its executives, including CEO Charlie Scharf, had made false or misleading statements about their diversity hiring practices between February 2021 and June 2022. However, Judge Trina Thompson dismissed the case without prejudice, giving the plaintiffs 21 days to file an appeal.
The lawsuit focused on Wells Fargo’s Diversity Search Requirement protocol, which stated that at least 50% of interview candidates for most U.S. roles with total direct compensation greater than $100,000 should be diverse. The plaintiffs claimed that the bank’s share price was artificially protected by misleading reports and public comments, causing a 10% drop in share price after a follow-up story by The New York Times.
Despite the dismissal of the lawsuit, Wells Fargo still faces potential legal and regulatory consequences. The bank has disclosed that it is facing inquiries or investigations from the U.S. Justice Department and Securities and Exchange Commission. Additionally, shareholder derivative lawsuits have been filed in federal District Court for the Northern District of California and in California state court regarding the hiring practices.
In response to these challenges, Wells Fargo has released a new version of its diverse candidate hiring guidelines, which include expecting a 50% diverse candidate slate and diverse interviewer panel, revising the exception process, providing updated training, focusing monitoring on increasing diverse representation, and holding senior leaders accountable for progress.
By dismissing the lawsuit, Judge Thompson highlighted that the plaintiffs’ claims did not provide sufficient evidence of sham interviews conducted to fulfill the Diversity Search Requirement. However, she acknowledged that Wells Fargo’s past regulatory issues offered some context to the allegations but were not enough to establish scienter, or intent.
Although the lawsuit has been dismissed, it remains to be seen how Wells Fargo will navigate the ongoing investigations and potential repercussions associated with its diversity hiring practices. The bank’s commitment to revising its guidelines demonstrates its recognition of the importance of increasing diverse representation within its workforce.
