Former Wells Fargo executive files lawsuit against Federal Reserve over deferred compensation
In an unprecedented legal move, James Richards, a former executive at Wells Fargo, has filed a lawsuit against the Federal Reserve. The lawsuit alleges that the Federal Reserve denied Richards' post-retirement deferred compensation, specifically his Restricted Share Rights (RSRs), and classified them as a "golden parachute payment."
Richards, who served as the Bank Secrecy Act officer and head of the financial crimes risk management group at Wells Fargo, argues that the Fed's decision has caused him legal harm and adversely affected him. His compensation included annual awards of RSRs with four-year vesting periods, which the lender canceled for the years 2019 and 2020.
The core dispute is whether the deferred compensation should be classified as a retention incentive or a "golden parachute payment." The RSRs were not contingent on Richards' termination but were designed as an incentive for him to continue working at Wells Fargo. Richards sent the required letter and supporting documentation to the board in July 2021, but the Fed's board denied his application in March.
The regulations preventing a bank in a troubled condition from making "golden parachute" payments to employees are primarily found in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This Act was enacted to address risky practices in the financial sector and impose controls on compensation practices for financial institutions that are under regulatory supervision due to distress or failure risk.
The Act places restrictions on "golden parachute" payments, which are large severance packages or bonuses given to top executives when they leave a troubled financial institution. These restrictions are designed to prevent payments that could undermine the financial stability of the institution or reward executives for failure or misconduct. The Federal Reserve and other banking regulators have specific authority under the Dodd-Frank Act to review, approve, or reject golden parachute payments to ensure they are reasonable and do not put the institution at further risk.
Richards' attorneys refuted the claim that he was "substantially responsible" for the wholesale banking group's "troubled condition" regarding the 2015 consent order. The OCC terminated the 2015 consent order related to its BSA/AML compliance program in 2021.
In addition, Richards' lawsuit also challenges the "golden parachute" classification and argues that the decision violated the Administrative Procedure Act. Richards is seeking judicial review of the Fed's determination and denial of his application to receive his deferred compensation.
Interestingly, in a separate development, former Wells Fargo CEO Tim Sloan sued the bank in December 2023, claiming it owes him more than $34 million in canceled stock awards, unpaid bonuses, and "emotional distress."
This case marks a significant legal battle between a high-ranking former executive and the Federal Reserve, potentially setting a precedent for future cases involving deferred compensation and the interpretation of "golden parachute" payments.
In this legal battle, James Richards, a former financial crimes risk management group head at Wells Fargo, disputes the Federal Reserve's denial of his post-retirement deferred compensation, specifically his Restricted Share Rights (RSRs), arguing that it constitutes a business incentive rather than a "golden parachute payment." Additionally, Richards' lawsuit also contends that the Fed's decision violated the Administrative Procedure Act, and he is pursuing judicial review to receive his deferred compensation.
