Wells Fargo to pay $3 bln in fake account settlement
Wells Fargo has agreed to pay $3 billion to settle charges of fake account opening by employees.
Ken Sweet and Stefanie Dazio reported the news for the AP:
Wells Fargo agreed Friday to pay $3 billion to settle criminal and civil investigations into a long-running practice whereby company employees opened millions of unauthorized bank accounts in order to meet unrealistic sales goals.
Since the fake-accounts scandal came to light in 2016, Wells has paid out billions in fines to state and federal regulators, reshuffled its board of directors and seen two CEOs and other top-level executives leave the company. Wells Fargo’s reputation has never fully recovered from the sales scandal, even four years later.
The $3 billion payment includes a $500 million civil payment to the Securities and Exchange Commission, which will distribute those funds to investors who were impacted by Wells’ behavior.
“Wells Fargo traded its hard-earned reputation for short-term profits” said U.S. Attorney Nick Hanna for the Central District of California.
Before the scandal broke, Wells Fargo was considered to have a sterling reputation among the big banks. Bank executives referred to its branches as “stores,” and once had a policy of trying to get each Wells Fargo customer to have eight financial products with the company.
Behind the scenes, Wells’ top management was pushing sales goals that were both aggressive and unrealistic. Bank employees were berated for not making bloated quotas, leading sometimes to mental health breakdowns, and ultimately resulting in many employees gaming Wells Fargo’s sales system in order to meet the targets. For example a number of Wells Fargo customers, notably the elderly, were signed up for online banking when they did not have internet access.
Two CEOs and other senior executives at the bank have lost their jobs amidst the probe into the scandal and outrage over claims the bank was slow to correct it.
Wells Fargo, the fourth-largest bank in the United States in terms of assets, has paid out more than $4 billion in financial penalties related to its business practices.
The bank is negotiating a deal with the Justice Department, which declined to comment, and the Securities and Exchange Commission, which did not respond to questions.
Wells Fargo declined to comment, but the San Francisco-based bank can easily absorb the fine because it had set aside $3.9 billion at the end of June last year to settle legal disputes, including those related to its business practices.
The new deal will not cover any of the bank executives implicated in the case, the second source said, meaning federal authorities could still decide to prosecute them.
US authorities last month fined John Stumpf, Wells Fargo’s chief executive from 2005 to October 2016, $17.5 million and banned him for life from the banking sector.
Charlie Scharf, who took over as CEO last October, has promised to revive the bank, whose 2019 results have been hit by the scandal.
CNBC’s Thomas Franck and Al Lewis wrote:
San Francisco-based Wells Fargo avoids criminal prosecution as part of the deal. It struck a three-year deferred prosecution agreement to resolve a criminal investigation into false bank records and identity theft. It must abide with terms of the agreement, to avoid prosecution, including continuing to cooperate with ongoing investigations.
As part of the agreements, the nation’s fourth-largest bank admitted it collected millions of dollars in fees and interest that it should not have collected, harmed the credit ratings of customers, and unlawfully misused customers’ sensitive personal information.
Wells Fargo’s $3 billion payment includes a $500 million civil penalty to be distributed by the SEC to investors.
By contrast, Wells Fargo reported a net profit of $19.5 billion in 2019.
The settlement represents the latest government penalties for Wells Fargo and its former management for malfeasance in which millions of fake accounts were set up to meet sales quotas. They included checking and savings accounts, credit and debit cards and bill pay services. These practices went on for over a decade, Hanna said, and involved thousands of employees trying to meet unrealistic sales quotas.