The Securities and Exchange Commission charged two former Wells Fargo executives, including a past CEO and Chairman, for allegedly misleading investors about the success of the bank’s largest business segment, piling on to the saga of misconduct-related scrutiny that’s been plaguing the nation’s third-largest bank for years.
Former Wells Fargo CEO and Chairman John G. Stumpf, who served as CEO from 2007 until October 2016, has agreed to pay $2.5 million to settle new charges against him alleging that in 2015 and 2016 he signed and certified regulatory filings containing statements “he should have known were misleading” investors.
Such misleading statements included references to a “cross-sell metric” in the San Francisco-based firm’s community banking segment that the SEC found was “inflated by accounts and services that were unused, unneeded or unauthorized.”
Meanwhile, unsettled charges against Carrie Tolstedt, who was the former head of the community banking segment at the time, allege that between mid-2014 and mid-2016 she publicly described, certified and endorsed the inflated sales metric “when she knew or was reckless in not knowing” that statements regarding the metric were “materially false and misleading.”
The SEC says its investigation is ongoing; Wells Fargo had no comment on the new charges, but pointed to a January statement about the misconduct in which the firm said in part, “This was inexcusable; our customers and you all deserved more from the leadership of this company.”
In an emailed statement to Forbes, Tolstedt’s lawyer said, “It is unfair and unfounded for the SEC to point the finger at Ms. Tolstedt when her statements were not only true but also thoroughly vetted by others as part of Wells Fargo’s policies, procedures and systems of controls,” adding that they “look forward to setting the record straight and clearing her name.”
Wells Fargo shares were virtually flat in Friday trading and are down about 55% for the year amid a broader market rout for financial stocks.
“For several years, Wells Fargo bankers sold customers products and accounts that were never used by customers, as well as unwanted and unauthorized products, contrary to Wells Fargo’s purportedly needs-based cross-selling strategy,” the SEC’s complaint against Stumpf, 67, reads. “The community bank [segment’s] onerous sales goals and accompanying management pressure led many of the employees to engage in the misconduct.” At the height of the misconduct, the complaint notes that more than 1,000 employees were being fired annually for their involvement.
As noted in the complaint against Stumpf, the sales misconduct in Wells Fargo’s community banking segment was widespread and varied and came to public light in October 2013 after a Los Angeles Times report revealed that Wells Fargo fired about 30 employees in a Los Angeles-area office who were accused of cheating on sales goals. The piece sparked an investigation by the Times that detailed how bank employees would order credit cards for customers without their permission and forge client signatures, among other things. In 2018, Wells Fargo settled related charges with New York’s Attorney General for $65 million, and this February, Wells Fargo agreed to pay the SEC $500 million for misleading investors as part of a massive $3 billion settlement with the Department of Justice.
$10.7 billion. That’s how much revenue Wells Fargo’s community banking segment pulled in for the firm’s third quarter, accounting for nearly 60% of the bank’s total revenue.
Wells Fargo reportedly laid off 700 employees in its commercial banking division last month as part of a multi-billion dollar cost-cutting measure that could impact tens of thousands of the bank’s employees.
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