Late Capitalism

Wells Fargo: You Can’t Sue Because You Should Have Known We Misled You

A new legal argument from the extremely shady bank is basically: "We can't be trusted to tell the actual truth." And it might work.
Wells Fargo is bad.

In a classic scene from Animal House, frat guys convince their pledge, Flounder, to let them use his brother's car, which they promptly wreck. As Flounder wallows in sadness, one of the guys tries to cheer him up. “You can’t spend your whole life worrying about your mistakes,” he says. “You fucked up! You trusted us!”

That’s essentially the legal argument Wells Fargo made earlier this month in federal court, to avoid sanctions for lying to its shareholders. And they might just get away with it.


In an argument filed November 2, Wells Fargo took the stance that all those public apologies from executives about its spate of scandals and rip-offs, all those promises to do right by customers and become a trusted bank again—they were all mere exaggerations no reasonable person could ever possibly have believed.

There’s actually an entire legal doctrine protecting corporations from liability for false promotional statements—it’s known as “puffery.” In a case in England in 1892, the Carbolic Smoke Ball Company, manufacturer of a flu remedy, argued that a financial guarantee dangled in case the medication failed to work was “mere puff” nobody could realistically hold them to.

Nearly a century later, the Federal Trade Commission (FTC) wrote a policy statement on deception, saying they would not hold a company liable for obvious hyperbole. “America’s Best Eyeglasses” could call themselves by that name because nobody expects customers to believe the company’s product is somehow assured to be the best in America. But the concept of puffery normally concerns advertising, not statements that a company makes to its investors.

Wells Fargo has been trying to rebuild trust in its business since at least fall 2016, when it began to be revealed that employees opened millions of fake accounts in customers’ names without their knowledge or consent. At the time, CEO Tim Sloan had a consistent message.


“My primary objective is to restore trust in Wells Fargo—restore pride in our company and mission,” he said in a companywide address that October. “We’ve already made progress in restoring customers’ . . . trust, and we remain committed to being transparent with investors,” he said in an earnings call the following January. “Restoring your trust and the trust of all key stakeholders is our top priority,” read Sloan and chairman Stephen Sanger's 2017 statement to shareholders before its annual meeting.

Trust and transparency were the key messages, and yet the continued cascade of scandals exposed after the fake accounts displayed no such attributes. Wells Fargo was forced to admit they had routinely charged at least 600,000 auto-loan customers for insurance they didn’t want or need, driving nearly 25,000 into having their cars repossessed. It was accused of secretly changing the loan terms of mortgage borrowers in bankruptcy and falsifying records to charge mortgage applicants for its own delays in application processing. Wells Fargo paid $1 billion in fines to settle claims associated with these scandals in April.

Not only did these abuses look terrible amid the constant talk of restoring trust, but at an investor conference on November 3, 2016, Sloan said publicly that he was “not aware” of any undisclosed regulatory issues. Since the auto-insurance scandal was revealed, however, a class-action lawsuit has argued executives knew what was going on since as early as 2012.


Wells Fargo stockholders, who had been hearing about the company mending its ways, only to get hit with one stock-plummeting bombshell after another, decided to take action. They filed suit, citing the bank’s repeated claims about improving compliance and transparently admitting errors, which gave them confidence to maintain their investments. The stockholders sought to recoup losses from shares tanking after the revelations of further abuses.

Were Wells Fargo’s statements about transparency and trust, while concealing a major scandal about illegal, force-placed auto insurance, simply fraud upon investors? No, according to Wells Fargo. “These statements are paradigmatic examples of non-actionable corporate puffery on which no reasonable investor could rely,” the legal filing asserted.

Put aside whether advertising should be exempt from telling the truth on the grounds that it’s all just obvious bullshit. What Wells Fargo is declaring here is something far more insidious.

Under this standard, Wells Fargo couldn’t be held responsible for virtually anything it puts in its corporate disclosures outside of the material misstatement of a statistic. If Wells Fargo’s statements about its own integrity and ethical probity are too vague to be taken seriously, according to the company itself, why would anyone invest with Wells, or for that matter, put their money in its banks?

Moreover, as the LA Times’ Michael Hiltzik explained, the idea that Wells Fargo’s statements weren’t taken seriously by investors is belied by the fact that, when the new scandals came to light, their stock went down. (In a statement issued to Hiltzik, the bank insisted it had not lied. "Wells Fargo stands behind the statements it made regarding its commitment to transparency and rebuilding trust with its customers,” the bank told him via email. “These statements were true then and remain so today.”)

But these statements didn’t come from Wells Fargo’s marketing team or a slick ad campaign. They came from the CEO and the chairman of the board. They were not ignorant of Wells Fargo’s compliance issues, and if they were, that’s an indictment of the company all by itself.

Finally, the spectacle of a bank saying they were just blowing smoke when they expressed a commitment to earning trust doesn’t exactly inspire any would-be customer. This bank has basically told the world they lie or at least mislead about their core values on a regular basis. Maybe it’s time to believe them.

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