(The Charlotte Observer) - Federal prosecutors and the SEC announced a settlement with Wells Fargo for $3 billion Friday, closing the long-running federal probes into the bank’s sham sales practices.
Wells Fargo will enter into a deferred prosecution agreement and as part of the settlement will have to pay a $500 million penalty that the SEC will distribute to investors.
Wells Fargo admitted in the settlement that it improperly collected millions of dollars in fees and interest, harmed the credit ratings of certain customers and misused customers’ personal information. It was one of the largest fines for a U.S. bank since the 2008 financial crisis.
“Today, Wells Fargo has admitted to, and accepted responsibility for, a series of consequential failures,” said Charlotte’s U.S. Attorney Andrew Murray, whose office led the investigation into the bank alongside federal prosecutors in Los Angeles.
He called the settlement figure appropriate “given the staggering size, scope and duration of Wells Fargo’s illicit conduct...” Murray said the bank succumbed “to the pernicious forces of greed.”
Wells Fargo is one of the biggest employers in the Charlotte region with about 27,000 workers employed at the bank, partially a result of the bank’s 2008 purchase of Wachovia. The bank is headquartered in San Francisco.
“The conduct at the core of today’s settlements — and the past culture that gave rise to it — are reprehensible and wholly inconsistent with the values on which Wells Fargo was built,” said Wells Fargo CEO Charlie Scharf in a statement. He took the helm of the bank in October.
While Scharf said the bank has taken steps to improve its conduct, he added that “there’s still more work we must do to rebuild the trust we lost.”
Among Wells’ failures, Murray said, were, “a failure to fix a broken sales planning process that led to unscrupulous, and in many cases criminal, sales practices; a failure to disclose its misconduct to investors; and perhaps most importantly, a failure to serve millions of its customers in Charlotte, and elsewhere, who trusted the bank to safeguard their money, their interests and their personal information.”
The settlement stems from Wells Fargo’s sales practices, as well as other misconduct.
From 2002 to late 2016, hundreds of thousands of Wells Fargo employees took part in opening millions of sham accounts in customers’ names to meet unreasonably high sales goals, regulators found in January.
The resulting backlash from the revelation of those sales practices has derailed the bank for years. Its share price has stagnated while its peers’ stock prices have soared. The bank cycled through three chief executives since the practices became widely known in 2016.
Since starting his job in October, Scharf has repeatedly apologized for the sales practices, hoping that contrition will help the bank finally put the scandal in the past.
“This bank is going to perform better in the future,” Wells Fargo’s new chief operating officer Scott Powell said in an interview with the Observer prior to the announcement.
The settlement is the latest step to finally close the book on Wells Fargo’s misconduct scandal. In January, the Office of the Comptroller of the Currency, Wells Fargo’s federal regulator, filed charges against or settled with eight former executives at the bank.
John Stumpf, Wells Fargo’s CEO for much of the period when the sales misconduct took place, can never work for a bank again and must pay a $17.5 million fine as a result of a settlement with the regulator.
The former head of Wells Fargo’s consumer bank, Carrie Tolstedt, a key player in the scandal, is fighting her charges. Regulators are seeking a $25 million fine from her and an industry ban. The settlement announced Friday covered just the bank, charges against former executives were not mentioned.
Despite the settlement, regulators are still closely examining the bank. Since February 2018, the Federal Reserve has restricted Wells Fargo from growing beyond its 2017 size, about $2 trillion in assets, as a punishment.
The cap will remain in place until Wells Fargo, the country’s biggest mortgage and small-business lender, demonstrates to the Fed that it has fixed its oversight and risk management; proving that there are sufficient safeguards to prevent another scandal like this from happening again.
But the Fed isn’t the only regulator left closely watching Wells.
The bank said in January that it has 12 outstanding public enforcement actions against it from a range of regulators, including five alone from the OCC.
This is a developing story