What if a Big Firm Misrepresents Its DEI Initiatives?

In the years following George Floyd’s death, many companies have introduced internal efforts to increase their diversity, equity, and inclusion (“DEI”) initiatives to protect those who have historically been disadvantaged. However, it is important that these companies are honest about their efforts, but in at least one case, it has been alleged a brokerage firm was repeatedly not honest.

Wells Fargo is at the center of Environmental, Social, and Governance (“ESG”) related lawsuits deriving from allegedly conducting fake job interviews to diverse applicants, in efforts to comply with their “Diverse Slating Policy.” On their second attempt at suing Wells Fargo, shareholders commenced a lawsuit alleging that both Wells Fargo and members of their board misrepresented the firm’s DEI initiatives and deprived job opportunities from members of underrepresented groups, groups the initiatives were meant to help. As the  “S” in “ESG” stands for “social,” the topic of DEI falls underneath that umbrella. Many companies that establish policies to “enhance” diversity in the workplace fail to implement and/or report such practices, resulting in substantial scrutiny from both investors and the SEC.

“Well-intentioned people created these initiatives, but when they hit the ground, the energy was devoted not to implementing them but finding a way to get around them,” according to Linda Friedman, a lawyer who settled a class-action suit on behalf of 320 black financial advisors for $36 million in 2017 after the advisors sued the company for allegedly positioning them to work in poor neighborhoods while seemingly affording white financial advisors to newer clients and better opportunities. Following this lawsuit, along with the overwhelming impact of George Floyd’s death in 2020, many companies, including Wells Fargo, issued a “diverse slate” policy, otherwise known as a diverse search requirement. Specifically, Wells Fargo’s policy allegedly asserted that at least 50% of the prospective job candidates who are interviewed must represent a disadvantaged group or some kind of diversity component (including race/ethnicity, gender, LGBTQ, veterans, and people with disabilities) for most posted positions in the U.S. with compensation greater than $100,000 per year. See Complaint filed 6/28/22.  Although this may seem like a step in the right direction, it is quite the contrary because over the following years, it is alleged that the policy caused confusion throughout the firm and resulted in negatively impacting the people these initiatives were intended to help.

Wells Fargo is one of the largest banks in the nation, with over 250,000 employees, however, it has been at the center of securities litigation for numerous reasons including allegations of misrepresenting their diversity efforts. On June 9, 2022, Wells Fargo was under a criminal investigation by the Criminal Division of the Manhattan U.S. attorney’s office’s, civil rights unit, to decipher whether it [Wells Fargo] violated federal anti-discrimination laws by “conducting sham interviews of minority and female job candidates” as stated in the New York Times article by Emily Fitter, “Federal Prosecutors Open Criminal Inquiry of Wells Fargo’s Hiring Practices.” The investigation commenced after ten former and current Wells Fargo employees shared their experiences as they were subjected to participating in or conducting sham job interviews. For example, as stated in the New York Times article, Joe Bruno, a former executive in the Wells Fargo wealth management division, was allegedly terminated from his position after voicing his concern for Wells Fargo dishonesty, stated that he noticed “so-called diverse candidates would be interviewed for a job that had already been promised to someone else.” He stated that he was made to only interview black candidates for financial consultant positions, which are lower paying positions because they work underneath financial advisors. Further, Mr. Bruno stated, “Wells had no intention of hiring those people” because they already filled the roles the candidates were applying for. Chief executive of Wells Fargo’s wealth and investment management business, Barry Sommers, responded to Mr. Bruno by purportedly stating that the financial consultant salary was significantly below a $100,000 salary, so they misaligned with the diverse slate policy. Rather, it was just alleged to be a way to track “the identities of interviewees” to meet their diversity requirement instead of following through and actually hiring those individuals.

Given the investigation and numerous testimonies, a plaintiff shareholder, on behalf of investors who purchased the company’s shares between February 21, 2021, and June 9, 2022, filed a securities class action on June 28, 2022, against Wells Fargo and a number of the bank’s officers and directors in the Northern District of California. According to the complaint, it alleges that Wells Fargo and its board violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, by exhibiting false and misleading behavior in “failing to disclose that: “(i) Wells Fargo had misrepresented its commitment to diversity in the company’s workplace; (ii) Wells Fargo conducted fake job interviews in order to meet its Diverse Search Requirement; (iii) the foregoing conduct subjected Wells Fargo to an increased risk of regulatory and/or governmental scrutiny and enforcement action, including criminal charges; (iv) all of the foregoing, once revealed, was likely to negatively impact Wells Fargo’s reputation; and (v) as a result, the Company’s public statements were materially false and misleading at all relevant times.” Judge Trina Thompson presided over this case and dismissed it in late August 2023, finding that there was no correlation between regulatory challenges and sham interview allegations in this case, and further they should have alleged “more than that the sham interviews were an open secret.” However, Judge Thompson did state that even though the evidence provided was not sufficient to prove intent to defraud,  “Wells Fargo’s history provides some context for the allegedly misleading statements.” Although the case was ultimately dismissed, given the foregoing statement by the Judge, the investors “beefed up” their complaint and filed a new lawsuit for a second bite at the apple, on September 26, 2023, alleging irresponsible supervision over internal controls throughout the company, breach of fiduciary duty based on acting in bad faith, abuse of control, and engagement in conspiracy to disguise their violations of diversity initiatives. See Complaint filed 9/26/23. As the second lawsuit has just begun, we must wait and see what the court ultimately decides. As we see the rise in securities litigation based on banks and investment companies like Wells Fargo misrepresenting their ESG-related initiatives and activities, it is important to raise awareness of this misconduct to ensure that companies are reporting their activities honestly and accurately, so investors, customers, and employees are properly informed about the impact of such practices.

Ms. Malecki is a DEI advocate, frequently speaking on the topic at bar association conferences. If you believe you have a DEI securities case, call Malecki Law at 212-943-1233 extension 1.


Contributions by Sarah Khan, New York Law School Securities Arbitration Seminar and Field Placement Extern.

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