Wells Fargo is set to pay $3 billion as part of its settlement with the Securities and Exchange Commission (SEC) and the Department of Justice, after the SEC charged the bank with misleading investors after opening fake accounts. Wells Fargo’s penalties include $500 million to the SEC.
According to the SEC’s order, between 2012 and 2016, Wells Fargo publicly touted to investors the success of its Community Bank’s “cross-sell” strategy, which it characterized as a key component of its financial success. According to the order, from 2002 to 2016, Wells Fargo opened millions of accounts of financial products that were unauthorized or fraudulent.
“Wells Fargo repeatedly misled investors, including through a misleading performance metric, about what it claimed to be the cornerstone of its Community Bank business model and its ability to grow revenue and earnings,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement. “This settlement holds Wells Fargo responsible for its fraud and furthers the SEC’s goal of returning funds to harmed investors.”
Former head of Wells Fargo John Stumpf was barred from ever working for a bank due to his connection with the scandal earlier this year. Along with Stumpf, eight former executives were fined for their role in sales fraud. Included was the former Head of the Community Bank Carrie Tolstedt, who could face penalties of nearly $25 million. Stumpf has agreed to a $17.5 million penalty.
Charlie Scharf, Wells Fargo’s new CEO and President, called the action by former employees “inexcusable.”
“The OCC’s actions are consistent with my belief that we should hold ourselves and individuals accountable. They also are consistent with our belief that significant parts of the operating model of our Community Bank were flawed,” Scharf said. “At the time of the sales practices issues, the Company did not have in place the appropriate people, structure, processes, controls, or culture to prevent the inappropriate conduct … Our customers and you all deserved more from the leadership of this Company.”
“During my first three months at Wells Fargo my primary focus has been on advancing our required regulatory work with a different sense of urgency and resolve, while beginning to develop a path to improve our financial results,” Scharf said. “This work is necessary to build the appropriate foundation for us to move forward. Wells Fargo plays an important role for our country, and we know that ultimately our actions and results will dictate when that trust is fully regained. And while the work is substantial, I am confident that with the appropriate prioritization of resources, processes, and management attention, we can accomplish what is expected of us."