Wells Fargo & Company (WFC), one of the biggest financial institutions in the US, is now facing a class-action lawsuit following claims that employee retirement savings are being used for mutual funds to further fund the bank.
The lawsuit was filed last November 22 in Minnesota, and currently litigation is under way. The lawsuit states that WFC is guilty of "self-dealing and imprudent investing" by using without employees' consent 401(k) contributions to its Wells Fargo Dow Jones Target Date Funds.
Wells Fargo Dow Jones Target Date refers to Wells Fargo's asset management division, with the investment philosophy of "increasing the odds of retiring with the largest possible balance... (where) the funds seek to balance the desire to grow assets against the need to preserve assets near retirement."
Wells Fargo currently denies giving further comment with the litigation under way.
The lawsuit was filed by Wells Fargo employees headed by John Meiners. The group seeks to get back unrealized profits from their 401(k) contributions following the unconsented funneling of their savings, which has been happening for the past six years. Meiners says employees' savings money were used as seed funds for Wells Fargo to keep on investing to other mutual funds under their noses.
Wells Fargo apparently made it easy for employees to invest on the company's investment portfolio because investment contributions are directly debited to their target date funds accounts. This practicality made the company encourage $35 billions worth of 401(k) contributions from 350,000 customers, including the company's own employees.
Wells Fargo Target Date funds, as said on the lawsuit, cost 2.5 times more than other investment funds such as Fidelity Investments and Vanguard Group. According to Meiners, this is because customers have to cover for management fees to manage the funds, then another set of fees to manage other the index funds channeled stealthily by Wells Fargo.
Had the employees invested on Vanguard's Target Date funds instead, they would have collectively earned $323 million more in five years, compared to what they received on Wells Fargo.
Wells Fargo is currently facing other lawsuits, including the opening of unauthorized customer accounts. Just last month, Wells Fargo's CEO John Stumpf stepped out of office following mismanagement and abuse of power allegations.
This class-action lawsuit case is now under U.S. District Judge David Doty in Minneapolis, and is filed as: Meiners v Wells Fargo & Co et al, U.S. District Court, District of Minnesota, No. 16-03981.