Shareholders and Robosigning: Is Wells Fargo Ruling a Portent?
The state and federal regulators who announced the $25 billion foreclosure settlement with five major banks last week aren’t the only folks complaining about robosigning. The exposure of that practice — in which bank representatives, in order to speed up foreclosures, signed thousands of mortgage-related affidavits without actually reading them — sparked the nationwide foreclosure investigations that led to the $25 billion settlement. The robosigning scandal also spawned shareholder derivative suits. Board members at Bank of America, Citigroup, Wells Fargo, and JPMorgan Chase have all been accused of breaching their duty to shareholders by permitting robosigning and other flawed foreclosure practices to take place.
Last week U.S. District Judge Susan Illston of San Francisco federal court ruled that shareholders can proceed with their case against Wells Fargo board members. In a 13-page opinion, the judge found that the plaintiffs, represented by Robbins Geller Rudman & Dowd and Barrett Johnston, had adequately alleged the futility of demanding action from the Wells Fargo board because board members’ “substantial likelihood of liability for breach of fiduciary duty” presented a conflict of interest. Illston pointed to allegations that at the same time the bank was attempting to stymie a federal investigation of its foreclosure practices, board members signed a proxy statement advising shareholders to vote down a proposed internal investigation because it was already cooperating with the government. “If, as alleged, defendants did not disclose material information within the board’s control, defendants breached their duty of loyalty to the company,” Illston wrote.
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