In new woe for Wells Fargo, whistleblower case headed back to court

Commuters walk by a Wells Fargo ATM location at New York’s Penn Station.
Commuters walk by a Wells Fargo ATM location at New York’s Penn Station. AP

A U.S. Appeals Court has officially sent a whistleblower lawsuit against Wells Fargo back to a lower court for reconsideration, in the latest legal woe for the San Francisco-based bank.

In their suit, former employees Paul Bishop and Robert Kraus alleged that Wells Fargo and predecessor Wachovia made false claims and statements in order to receive payments from federal agencies under various bailout programs during the financial crisis. They’re seeking damages on behalf of the federal government.

In February, the U.S. Supreme Court breathed new life into the case in August 2016 when it vacated a judgment by the U.S. Appeals Court for the Second Circuit that had affirmed a lower court’s decision to dismiss the case. The case turned on a June 2016 Supreme Court ruling that interpreted an aspect of the federal whistleblower law called the U.S. False Claims Act.

This week, the Appeals Court based in Manhattan officially sent the case back to U.S. District Court in Brooklyn for “further proceedings.”

Wells Fargo has said the case is without merit. “We look forward to stating our legal position with the District Court,” Wells spokeswoman Elise Wilkinson said.

The decision comes as Wells Fargo is still struggling to recover from a sales scandal that erupted last year over allegations that its employees created fake accounts to meet aggressive sales goal. The bank, which has a major employment Charlotte hub, still faces a federal investigation over the matter as well as probes related to its auto-lending practices.

Whistleblowers Bishop and Kraus first filed their lawsuit on behalf of the federal government in 2011 in U.S. District Court for the Eastern District of New York. They alleged the bank defrauded U.S. agencies that loaned money and provided other assistance to Wachovia in the financial crisis. Wells bought Wachovia in 2008 as the Charlotte bank verged on failure.

Rick Rothacker: 704-358-5170, @rickrothacker