Wells Fargo (WFC) Sued Over $300M Ponzi Scheme Allegations

Zacks Equity Research
·3-min read

Wells Fargo & Company WFC has been facing a proposed class action lawsuit alleging the bank for taking part in a $300 million Ponzi scheme. This scheme affected more than 1,000 investors, mainly senior citizens, and left them without substantial life savings.

The lawsuit filed stated that WFC had knowledge about the fraudulent activities from 2011 to 2021. The company provided substantial assistance to the perpetrators while reaping the benefits from the scam.

The current lawsuit seeks monetary remedies that involve incidental damages and civil penalties. It also demands pre- and post-judgment interest, as well as the return of income and fees that WFC earned through its involvement in the scheme.

Wells Fargo has declined to comment on the matter.

Per the lawsuit, “by recklessly pursuing its objectives to maximize assets held, and to generate account- and transfer-related revenue and compensation, Wells Fargo and its employees substantially assisted the Scheme’s fraud, as well as the misuse and misappropriation of assets by allowing the Scheme to continue operating and enabling the Ponzi Scheme to reach catastrophic levels.”

The legal filing claimed that National Senior Insurance, operating as Seeman Holtz, sold promissory notes to the plaintiffs. These notes were offered by the Para Longevity Companies and secured by life insurance policies issued to third parties, called Stranger-Originated Life Insurance (STOLI) and life settlements. Investors were promised that the proceeds from the death benefits of these STOLIs would be used to pay interest, and eventually, the principal amount would be returned.

However, as stated in the lawsuit, instead of using new investor’s money to pay premiums for new STOLI policies, the scheme operators diverted a significant portion of these funds to pay off existing investors. Furthermore, they looted significant sums through inappropriate, excessive or fictitious fees and expenses.

Since September 2016, the bank has faced significant challenges with numerous penalties and sanctions, including a cap on the asset position by the Federal Reserve. In September 2021, the bank was levied with restrictions on acquiring certain residential mortgage servicing and a $250 million penalty due to its inefficient home-lending loss mitigation program. Besides these, the company has a long list of pending legal cases and consent orders to resolve. Recent regulatory constraints, financial penalties and legal challenges pose a significant threat to Wells Fargo. These litigations might potentially impact the company’s profitability, growth prospects and ability to regain trust and confidence from stakeholders.

Over the past six months, shares of WFC have gained 25.2% compared with the industry’s growth of 21.6%.

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Currently, WFC carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Some other top-ranked stocks from the finance space are UMB Financial Corporation UMBF and First Financial Bancorp. FFBC, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

UMBF’s 2024 earnings estimates have risen 14.4% over the past 60 days. Shares of UMBF have gained 6.2% over the past six months.

FFBC’s 2024 earnings estimates have increased 5.2 % over the past 60 days. Shares of FFBC have lost 2.3% in the past three months.

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Wells Fargo & Company (WFC) : Free Stock Analysis Report

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