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A federal judge has dismissed claims against three senior executives at Wells Fargo in a shareholder lawsuit accusing the bank of conducting "sham" job interviews to feign diversity hiring efforts.
US District Judge Trina Thompson ruled that the plaintiffs’ second amended complaint failed to address deficiencies highlighted in an earlier dismissal of the same claims. Unlike the prior ruling, this dismissal was with prejudice, barring the plaintiffs from further amending their claims.
The lawsuit targeted Scott Powell, the bank's chief operating officer; Carly Sanchez, a former vice president for diversity recruiting; and Kleber Santos, CEO of consumer banking and previously head of Wells Fargo’s Diverse Segments, Representation, and Inclusion group.
Plaintiffs alleged the executives made false statements about the company’s diversity initiatives, including a policy requiring at least half of candidates interviewed for positions paying over $100,000 to come from underrepresented groups.
Demand futility
At the core of the lawsuit was the claim that Wells Fargo’s leadership staged interviews with women and people of color for roles that were already filled, with no intention of hiring the candidates.
The allegations, first exposed in a 2022 New York Times report, led to shareholder lawsuits asserting the bank’s board and executives breached their fiduciary duty and misled investors, causing the bank’s stock price to fall
Thompson determined, however, that the plaintiffs failed to meet the legal standard for demand futility - a requirement to demonstrate that asking the company’s board to address the grievances would have been pointless. The judge found that the amended complaint lacked sufficient factual basis to support the argument.
In other words, the shareholders who sued didn’t prove that they tried asking the company’s board to fix the issue or that doing so would have been pointless.
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“The factual allegations against the director defendants and the officer defendants are not a near-total overlap,” Thompson said in her decision. “Plaintiffs’ allegations as to demand futility for claims asserted against officer defendants are conclusory as they add no facts that indicate demand on the board was futile.”
False statements
Gia Jung, an attorney representing the shareholders, argued during a hearing earlier this week that the amended complaint “unequivocally” addressed demand futility. Jung claimed the false statements by directors and officers were intertwined, creating conflicts of interest for the board.
Judge Thompson, however, remained unconvinced, asking Jung to specify what new evidence in the amended complaint justified reconsidering the previous dismissal. Jung’s explanation failed to sway the court, leading to the judge’s ruling.
The dismissal specifically applied to claims against Powell, Sanchez, and Santos, who were central to the consolidated lawsuits. The broader shareholder lawsuits remain ongoing, including securities claims alleging Wells Fargo misled investors about its diversity initiatives.
The ruling shows the scrutiny on corporate diversity policies and the potential fallout when such initiatives are perceived as disingenuous.
