Wells Fargo & Company has been hit with a proposed class action in which an investor claims the bank’s concealment of how it improperly prioritized Paycheck Protection Program (PPP) loan applications caused drops in stock price in April and May 2020.
According to the 19-page complaint, Wells Fargo announced on April 5, 2020 that it received strong interest in the PPP, a program offered under the CARES Act, and was aiming to distribute $10 billion to small business customers. Three days later, the suit says, the Federal Reserve loosened Wells Fargo’s shackles and allowed the bank to exceed the asset cap imposed in 2018 after it was revealed the defendant opened millions of fraudulent accounts without authorization.
With the change, Wells Fargo was allowed to extend additional small business loans under the PPP, the case states. The same day, April 8, the bank announced it would expand its participation in the PPP to offer loans to “a broader set of its small business and nonprofit customers,” per the lawsuit.
The case alleges, however, that Wells Fargo issued between April 5 and May 5, 2020—the class period—a number of “materially false and misleading statements” with regard to the bank’s handling of PPP loan applications. More specifically, the defendants—Wells Fargo & Company and its CEO and CFO—failed to disclose to investors that the bank “planned to, and did,” improperly allocate government-backed PPP loans, and/or had in place inadequate controls to prevent misallocation, the suit says. As a result, the defendants opened Wells Fargo up to an increased litigation risk and regulatory scrutiny that may be followed by enforcement actions, the plaintiff claims.
On April 19, the case continues, after at least one lawsuit was filed against Wells Fargo, reports emerged that the bank may have unfairly allocated loans under the PPP, in particular by prioritizing businesses in search of larger loan amounts while claiming to handle applications on a first-come, first-served basis. As the complaint tells it, Wells Fargo concealed from the public that it was essentially reshuffling and prioritizing PPP loan applications in a manner that would make the bank as much money as possible.
Upon this news, Wells Fargo’s stock price dropped more than five percent over two trading days, closing at $26.84 per share on April 21, the lawsuit claims.
On May 5, Wells Fargo disclosed in a quarterly report filed with the Securities and Exchange Commission that on top of multiple PPP-related lawsuits, it had “received formal and informal inquiries from federal and state government agencies” concerning its PPP loan offerings, the complaint says. With this news, Wells Fargo stock price fell again, this time by more than six percent over two trading days to close at $25.61 per share on May 6, according to the case.
Through two rounds of funding by the U.S. Small Business Administration, the PPP authorized up to $659 billion in forgivable loans to businesses with 500 or fewer workers to help cover payroll amid the COVID-19 crisis. To date, Wells Fargo, JPMorgan Chase, Fountainhead Commercial Capital, PNC Bank and a bevy of others have been hit with putative class action litigation centered on their involvement in the PPP, including their alleged failure to pay agents who assisted small businesses with preparing their applications.
ClassAction.org’s coverage of COVID-19 litigation can be found here and over on our Newswire.