SEC must not silence Wells Fargo investors

When Wells Fargo made headlines for opening 3.5 million fake accounts, reports revealed that customers had tried to sue the financial giant over this fraud since at least 2013. But rather than addressing its systemic wrongdoing, Wells Fargo moved to keep the scandal out of the public eye by forcing consumers to file individual claims in secret hearings — and continue pocketing millions of dollars.

Despite widespread outcry and repeated public promises to restore trust, Wells Fargo continues to use forced arbitration “rip-off clauses” in its contracts with consumers and workers. It’s no wonder why. A report from nonprofit arbitration database Level Playing Field found the secret hearings not only save Wells Fargo money — they make the bank money.

Even during the prime years of the fake account scandal, the average consumer that faced Wells Fargo in arbitration was ordered to pay the bank nearly $11,000. Of an estimated 4.3 million victims of Wells Fargo’s illegal activities, only two consumers won in arbitration against the bank last year.

Wells Fargo didn’t just cheat its customers, though. The undisclosed consumer frauds also ended up hammering its investors. People who had invested their retirement savings in what they thought was a legitimate, above-board bank found their savings decimated by Wells Fargo’s plummeting stock prices as new revelations kept coming — and executives kept misleading shareholders and even congressional committees.

Fortunately, so far Wells Fargo hasn’t been able to keep its investors out of court. Long-standing Securities and Exchange Commission precedent bars corporations from including forced arbitration clauses in their bylaws or offering documents — making securities class actions one of the last remaining pathways for justice when huge corporate scandals hit. These class actions recover billions of dollars for cheated investors, ranging from large pension funds for firefighters and first responders, to military veterans and everyday Americans holding IRAs and 401(k)s.

A major investor action is moving forward against Wells Fargo, charging that its leadership “knew or consciously disregarded” the millions of fraudulent accounts created “without those customers’ knowledge or consent.” The bulk of the investors’ claims are levied directly against the bank’s top brass, including former CEO John Stumpf and current CEO Tim Sloan.

But as Wells Fargo prepares to face investors at its annual meeting in Des Moines, Iowa, on Tuesday, new leadership at the SEC seems to be contemplating a move that would allow corporations to bar investor actions like the one pending against the embattled bank. Such a dramatic policy reversal would not only take away one of the few tools left to fight back against corporate fraud, it could put the retirement savings of millions of hardworking Americans at risk.

It is perhaps unsurprising that this same SEC leadership has yet to bring civil or criminal charges against Wells Fargo executives for their role in defrauding investors. The New York Times assessed that the “prospect of governmental action appears to be diminishing” under the new chair, Jay Clayton, despite evidence that executives and directors made false statements about the fake account scheme in official filings.

Yet even when the federal government steps in, the SEC often isn’t as aggressive in going after corporate fraud as are aggrieved investors exercising their right to sue. Highprofile cases of securities fraud bear this out. In actions against Enron, WorldCom, Tyco, Bank of America and Global Crossing, the SEC recovered penalties and fees totaling $1.8 billion, compared to $19.4 billion returned to defrauded investors in securities class actions — more than 10 times as much.

If the SEC reverses decades of precedent and allows corporations to block investor suits, the retirement savings of every hardworking American investor — including anyone with an IRA or 401(k) — will be at the mercy of corporate giants like Wells Fargo. As the bank stubbornly insists on forcing consumers and workers into secret arbitration more than a year into its scandal, there is no reason to think their investors would fare any better.

Literal billions hang in the balance. The SEC must not tip the scales.