Wells Fargo, Deutsche Bank, and Neuberger Berman Grapple with 401K lawsuits

A plaintiff who is a participant in Wells Fargo’s 401(K) plan is suing the bank. The individual claims that the company’s cross-selling scandal has caused its stock price to drop significantly and this has resulted in hundreds of millions of dollars in damages to the retirement plan.

It was just last month that regulators imposed a $185M fine on Wells Fargo for setting up 2.1 million credit card accounts and unauthorized deposits for banking customers so as to satisfy sales quotas. Some employees allegedly set up debit cards for customers without their knowledge, even assigning them PIN numbers.

Although Wells Fargo is settling with the Los Angeles City Attorney, the U.S. Office of the Comptroller of the Currency, and the U.S. Consumer Financial Protection Bureau, it is not denying or admitting to the allegations. 

 

According to the 401K complaint, Allen v. Wells Fargo & Co. et al.,  the defendants purposely did not disclose material non-public information to Plan Participants regarding a “criminal epidemic” involving Wells Fargo’s business model and its cross-selling activities. The plaintiff believes that fiduciaries of the 401(K) plan were aware that Wells Fargo stock had been artificially inflated because of the  “systemic fraud” and the stock’s price would fall once the scam became known. The plaintiff noted that it is a violation of a fiduciary’s obligations under ERISA when they don’t act to protect plan participants or a retirement plan from stock losses caused by a scam.

 

In another recent, but unrelated, 401K lawsuit brought against a financial firm, Neuberger Berman has decided to fight back against the complaint brought against it by a former employee. The plaintiff, Arthur Bekker, believes that one of the fund’s in the New York money manager’s 401(K) plan—the Value Equity Fund—violated pension law’s self-dealing provisions. Neuberger managed the fund separately for employees in its 401(K) plan. Bekker claims that Neuberger breached its fiduciary duty under ERISA when it offered employees a fund managed internally when an externally managed index fund could have made better returns and charged lower fees. Neuberger, however, is  arguing that the complaint should be tossed because it believes there is no grounds for the case. 

 

In still other 401K lawsuit news, a federal judge has decided that the self-dealing case against Deutsche Bank (DB) may proceed. The bank and other defendants had sought to have the case, which accuses them of violating their fiduciary duties through costly investments that allowed Deutsche Bank to profit, dismissed.

 

They tried to argue that the 401k lawsuit was time-barred because ERISA has statutes of limitations of three- and six-years. With the three-year statute, the defendants claimed that employees had known about the proprietary funds and their fees for more than that length of time. U.S. District Judge Lorna G. Schofield, however, said that the plaintiffs couldn’t have known about the excessive fees or poor performance unless they had a basis of comparison. The plaintiffs contend that they did not have this basis until right before they filed their case last December.  

 

The defendants also tried to invoke the six-year statute of limitations. They argued that the only transaction at issue that U.S. Code Section 1106 allegedly bars was the decision to make the proprietary funds part of the plan. They noted that the funds were chosen more than six years ago, so the limitations statute would have expired. 

 

The judge, however, said that the argument doesn’t succeed because it fails to accurately characterize the allegations brought by the plaintiffs. They claim that the prohibited transactions that are key in their case were the “shareholder service fees” they paid for investment management services and not the selection of the funds.

The SSEK Partners Group is a securities law firm. We work with high net worth individual investors and institutional investors in trying to recoup their fraud losses.