Friday 1/24/2025
Wells Fargo Bank has agreed to pay more than $1.1 million to resolve claims that it assisted jailed ex-attorney Chris Pettit in his scheme to defraud his clients of tens of millions of dollars.
Wells Fargo, the nation’s fourth-largest bank, did not admit any liability in agreeing to the settlement, which was approved Thursday by Chief U.S. Bankruptcy Judge Craig Gargotta.
“This is … less money than we wanted but also more than nothing,” Scott Lawrence, a Dallas lawyer representing bankruptcy trustee Eric Terry, told the judge in arguing for approval. “We take the creditors’ lack of objections to this as continued approval of our work on their behalf.”
he litigation that led to the settlement is unrelated to a pending case 200 Pettit clients have filed against Wells Fargo and other banks in federal court in San Antonio. In that case, the plaintiffs say the banks knowingly assisted Pettit and his law firm in breaching their fiduciary duties to the clients.
That case may be the last, best hope for Pettit’s victims to see any significant recovery. Creditors in the bankruptcies have submitted about $270 million in claims, but the recovery so far has been far less than that.
Pettit was a longtime probate, estate planning and personal injury lawyer who pleaded guilty to three counts each of wire fraud and money laundering related to the theft of millions of dollars from his clients. He is serving a 50-year prison sentence and has been ordered to pay $106.3 million in restitution to his victims, though it doesn’t appear he has any significant assets remaining.
After Pettit’s scheme became public, he filed for bankruptcy protection for himself and his firm, surrendered his law license and shut down his law offices in San Antonio.
In the trustee’s lawsuit against Wells Fargo, Terry learned that Pettit maintained several accounts at the institution — including an IOLTA account in New Mexico, even though he was never licensed to practice law in the state. Interest on lawyers trust accounts, commonly called IOLTA, are intended to be used by attorneys to hold clients’ money for safekeeping until distribution.
Terry uncovered at least $33 million of losses from the IOLTA account. He alleged about $3.5 million belonged to Pettit’s firm. That figure represented the maximum recovery the trustee could have achieved if he prevailed.
“I would hate for anybody to be confused and think that we’re settling … $33 million worth of claims for $1.125 million,” Lawrence said Thursday. “We’re settling what we view as the remaining claims against Wells Fargo, which we believe amount to about $3.5 million, again, of nonclient money that we alleged flowed through the IOLTA account.”
Gargotta, the judge, had ordered the parties to arbitrate the dispute.
“We fought hard,” Lawrence told the judge. “We litigated with what we considered very capable and well-funded adversaries. Wells Fargo is not going to run out of money to pay its lawyers anytime soon.”
Gargotta said one factor to consider is a need to obtain a recovery as soon as possible.
“Many of the Pettit clients are elderly, senior citizens, and they’ve lost a substantial amount of money,” he said before approving the settlement.
After giving his approval, Gargotta heard arguments from lawyers for Texas Partners Bank — formerly the Bank of San Antonio — on its motion to dismiss the trustee’s lawsuit against it. The bank has been accused of enabling Pettit in his scheme to misappropriate money from clients. The judge didn’t immediately rule on the bank’s motion.
The judge recently tossed a lawsuit against Frost Bank. That one alleged bank fees and loan payments to Frost amounted to “fraudulent transfers.” Other claims against Frost are being arbitrated.
Patrick Danner is a business reporter for the San Antonio Express-News. He can be reached at pdanner@express-news.net.
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