On a normal day, the directors of a publicly owned company will be able to distance themselves from liability in the event of a corporate misconduct that is said to happen under their watch. Just the other day, a federal court made a ruling in regards to Wells Fargo directors and how they handled two misconducts that happened under their watch. The ruling was considered as welcome but unusual. The case in question had been filed by the shareholders against the bank and its directors. They wanted to recover the losses that were caused by a recent fraud case where workers of the banks created unauthorized and accounts. As a result, the scandal affected the profits as the shares were hurt. At the same time, the scandal resulted in the departure of its chief executive officer last year. The federal court ruled in favor of the shareholders. The court determined that four current officers and 15 directors of the past and the present should be held responsible. In legal terms, the lawsuit has been referred to as a derivative action. The plaintiff argued that their interests in the company were harmed by the improprieties. Some of the high profile executives that had been named in the lawsuit included the current chief executive officer Timothy J. Sloan and former senior executive vice president Carrie Tolstedt. Mr. Tolstedt is the former executive of the banking unit where these fake accounts were created.
On their part, the defendants requested the court to dismiss the case arguing that the plaintiffs didn’t provide enough specificity of their wrongdoings. However, the hearing judge, Jon S. Tigar disagreed with the defendants. The case was heard at the United States District Court in San Francisco. He said that he would allow the cases to go forward as the plaintiffs would be given an opportunity to present their allegations. Legal experts not involved in the case said that the judge had sent a clear message to officials in charge of public companies. He warned them that they should be vigilant of any bad behavior that might be happening in their institutions. A securities law expert in New York known as Lewis D. Lowenfels says that the ruling is likely to resonate among corporate directors. At the same time, he says that it’s a warning to board members of corporations that they cannot act as passive figureheads in their respective companies by keeping their fingers crossed that nothing bad will happen.