James Richards, a former Wells Fargo executive, has sued the Federal Reserve for denying his post-retirement deferred compensation, raising questions about the central bank's authority in deciding executive compensation.
The case, filed last week in U.S. District Court for the Northern District of California, argued that the central bank has caused Richards legal harm and “adversely” affected him. He is seeking judicial review of the Fed’s determination and denial of his application to receive his deferred compensation.
The Fed’s board denied Richards' application in March.
Attorneys for Richards noted the Fed’s decision to deny their client’s application and prevent him from “receiving his earned compensation was arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law.”
“Furthermore, the procedure used by the Board in reaching its decision to deprive Plaintiff of his property was contrary to Plaintiff’s constitutional right to due process,” attorneys argued.
Richards was Wells Fargo’s Bank Secrecy Act officer and the head of its financial crimes risk management group during his tenure. He worked at the bank from October 2005 until he voluntarily retired in April 2018.
His compensation included an annual award of restricted share rights, which had four-year vesting periods.
The discretionary RSRs were only awarded if Wells found Richards’ performance credible enough to receive them.
The core dispute centered on whether the deferred compensation should be classified as a retention incentive.
The Fed classified Richards’ deferred compensation as a “golden parachute payment,” a claim that the complaint says is erroneous. It then argued that the RSRs were actually “golden handcuffs” since they were part of annual earned compensation, designed to encourage continued employment, and generally payable only if employment continued.
The attorneys argued that the compensation was not severance pay, a windfall, or an “extra” payment for protection during acquisition or termination.
The complaint contended that Richards’ receipt of his deferred compensation – the RSRs – was not contingent on his termination. On the contrary, the RSR agreement “flatly” states that the shares were intended to be an incentive for Richards to continue working at Wells Fargo since those generally cease vesting once Richard’s employment is terminated.
“This is the exact opposite of a ‘golden parachute’ payment. In fact, the RSRs were designed to be ‘golden handcuffs,’ not a ‘golden parachute,’” the lawsuit said.
However, prior to Richards’ retirement, federal regulators deemed the bank to be in “troubled condition,” and the Office of the Comptroller of the Currency issued four consent orders related to several issues at the bank.
According to federal regulations, after a bank has been found to be in troubled condition, “golden parachute payments” cannot be made to employees following the end of their employment unless the Federal Deposit Insurance Corp. or the board gives their permission to the bank to make such payments. To grant post-termination payments, either the bank or the employee must send a “certification” letter affirming that the employee did not engage in any misconduct that would prevent the employee from receiving the due compensation.
During Richards’ tenure, one of the OCC consent orders identified deficiencies in documentation within the bank’s wholesale banking unit.
Wells Fargo did not release the shares that Richards was scheduled to vest in the first two tranches of the RSRs that he was awarded between 2015 and 2018. Instead, the lender sent a letter to Richards stating that it canceled his 2019 and 2020 RSRs and that the bank would not send the required “certification” letter to federal regulators on his behalf for him to receive his 2021 and 2022 RSRs, citing the 2015 wholesale consent order.
The court document noted that Richards was one of the few people at the bank who raised concerns about the wholesale banking group’s problems, even though he had no operational authority over it. The bank and federal regulators praised Richards for his efforts “to provide significant material assistance” to the wholesale banking group.
Wells Fargo failed to identify any misconduct on Richards’ part and recommended that he send his own “self-certification letter” to the federal regulators, noting that it was willing to pay Richards his deferred compensation for 2021 and 2022 if they approved his application.
Richards sent the required letter and supporting documentation to the board in July 2021.
Richards’ attorneys refuted the claim, saying “they are either unsupported by the factual record, or are contrary to the factual record, or are a complete misstatement of the facts.”
In the March denial letter, the board cited three reasons for rejecting Richards’ request and noted that he was “substantially responsible” for the wholesale banking group's “troubled condition” regarding the 2015 consent order.
Richards’ attorneys refuted the claim, saying “they are either unsupported by the factual record, or are contrary to the factual record, or are a complete misstatement of the facts.”
The attorneys challenged that the decision violated the Administrative Procedure Act and the “golden parachute” classification, thereby seeking reversal of both determinations.
Wells Fargo declined to comment.
The OCC terminated the 2015 consent order related to its BSA/AML compliance program in 2021.
Richards is hardly the first Wells Fargo executive to sue for his deferred compensation. In December 2023, former Wells Fargo CEO Tim Sloan sued the bank he once led, claiming it owes him more than $34 million in canceled stock awards, unpaid bonuses and “emotional distress.”
