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Business

Wells Fargo defrauded the government during financial crisis: suit

By
Kevin Dugan
Published Sep. 7, 2017
Updated Sep. 7, 2017, 4:45 p.m. ET

More bad news for Wells Fargo.

A Manhattan federal appeals court on Thursday revived a whistleblower suit against the beleaguered bank, reviving allegations by two former employees that Wells hid billions in losses and defrauded the federal government during the financial crisis.

The former employees also claim they were fired when they brought the alleged misconduct to higher ups.

The employees’ case was dismissed by a trial court judge in 2015 — and a year later the same Manhattan appeals court upheld that decision. But weeks after the first decision by the US Court of Appeals for the 2nd Circuit, the Supreme Court lowered the bar on whistleblower suits, opening the door for Thursday’s court action.

The appeals court decision continues an incredible streak of unfavorable news for Well Fargo, most of it self-inflicted.

The bank and its CEO, Tim Sloan, are facing a slew of class-action suits, government investigations, and angry shareholders over years of alleged impropriety and ripping off customers.

The whistleblower suit was brought by Robert Kraus, a former Wachovia banker, and Paul Bishop, who worked for World Savings Bank — two firms that were acquired by Wells Fargo before 2009.

Wells used improper accounting techniques to hide losses in order to borrow money from the Federal Reserve at lower interest rates — effectively defrauding the government by hiding the true scope of the bank’s financial problems, the two bankers claimed in the initial 2011 complaint, filed in Brooklyn federal court.

While the toxic loans had originated at Wachovia and World Savings, Wells was aware of the bad loans and misstated them, they claim.

Wells Fargo ended up getting a $25 billion bailout from the Fed in 2008. It paid off the loan in December 2009, making it one of the last banks to repay taxpayers’ money it needed to stay afloat.

“We look forward to stating our legal position with the District Court,” Elise Wilkinson, a bank spokeswoman, told The Post.