Wells Fargo, major financial services company has been fined by a whopping $3 billion penalties by federal authorities of the US for creating and misusing millions of fake accounts and other relevant financial misconducts.

Wells Fargo’s financial scandal has been broken in 2016 after which thorough investigation took place. The federal authorities found out that the company had been practicing fraudulent activities with customer’s money for almost 15 years without their authorization.

During the span of 15 years, the company had been involved in various severe financial crimes such as forging customer signatures, shifting customer’s money from their accounts to unauthorized accounts, misusing customer’s personal information data, etc.

Charges levied by the SEC and Department of Justice.

The US Department of Justice (DOJ) announced on Friday 21 February that Wells Fargo has settled down for a hefty fine amount of $ 3 billion to resolve the criminal charges against the crimes that took place from 2002 to 2016. During this period, the company also had pressurized its employees to meet unrealistic sales targets. The Justice Department of Justice in its press release disclosed:

“Wells Fargo admitted that it collected millions of dollars in fees and interest to which the company was not entertained and the credit ratings of certain customers and unlawfully misused customer sensitive personal information, including customer’s means of identification."

The settlement was done with the Department of Justice (DOJ) and Securities and Exchange Commission (SEC).

Wells Fargo was charged for civil liabilities, fake accounts scandal and for the criminal activities related to the public money. Prosecutors have condemned one of the largest Bank of US for the staggering funds involved, nature and long duration in the illegal conduct

As per DOJ “Wells Fargo also entered a civil settlement agreement under the Financial Institutions Reforms, Recovery and Enforcement Act of 1989 (FIRREA), based on Wells Fargo based on Wells Fargo’s creation of false bank records.”

The deal, however, does not ensure to dismiss prosecution charges against the current and former employees of Wells Fargo who were involved in the scam.

More about Well Fargo

Wells Fargo is one of the oldest and largest banks of the US been founded in 1852. Headquartered in San Francisco, it offers banking and mortgage services, financial products and consumer and commercial finance as well. Dollar 19 trillion assets spread 7400 locations, with 32 International offices. Fortune has been ranked as the 6th largest bank in terms of total assets. And Forbes has ranked it 10th largest public company in the world in terms of sales, assets profits and market value.

How and when the Fraud Happened?

The company officials have admitted that it entered unlawful practices back in 1998 when the company was vying for higher sales volume. Continuing the schedule and practices from 2002 to 2016, Forbes community Bank used the gaming strategies to increase the sales. Through the community Bank which was the largest business unit of the company, wells Fargo generated half of its revenue through it.

How the gaming strategy has been used?

As per DOJ’s definition “Gaming strategies includes various fraudulent activities such as forging customer signature to open accounts without their knowledge and authorization, moving customers money from  their accounts to unauthorized fake accounts which is known as simulated funding, creating PINs  to activate unauthorized debit cards, accessing credit cards and bill pay products without customers authorization and knowledge, changing customers real contact information data to keep customers unaware of the unauthorized accounts and keeping away the Fargo employees from reaching customers to conduct customer satisfaction surveys, forcing the customers to open unnecessary accounts even if they without their need.”

The DOJ accused that the community Bank was well aware of the fraudulent activities but the top officials avoided to take action against the unlawful practices and that the community bank focused only on the increase of sales target and ignored the illegitimate conduct purposefully

New Management Efforts to restore the image and position of the Bank  

The series of scandals over the 15 years has affected the business badly and has tarnished their image. The bank owns heavy settlement amounts of the lawyers and has to invest in the risk management system as well as part of the image revamping. Stocks are down by 5% since 2-016 when the scam was disclosed On the other hand, the rival bank JPMorgan Chase and Bank of America have doubled their value.

From last year the new management has been trying to recover the tainted image of the bank. So former CEO of Visa (V) and Bank of New York Mellon Scharf has been hired to lead the new management and recover the image of the company.

The Labor Department of the bank has not been charged for the fraudulent activities as they launched a probe in 2016 against the Wage theft and strike back against the whistleblowers.

Many of them have accused that the frontline employees were forced for sales targets and some of them who raised their voices against the scandal had been fired by the top officials due to the action against the bank.

Fines imposed on the Wells Fargo 

Last month John Stumpf, the former boss of the Wells Fargo and one of the accused, has agreed to a lifetime ban from the banking industry and a hefty penalty of $17.5 million. Seven other former employees have been fined with $70 million under the charges of illegal sales practices misconduct.

The SEC ‘s separate Press release on Friday disclosed that Well Fargo has agreed to pay $ 500 million for misleading investors about the success of its largest business unit. SEC has charged the company for violation of the Anti-fraud Provisions of the Securities Exchange Act of 1934.

The DOJ further informed that the 3 billion payment resolves all three matters $ 500 million civil penalties to be distributed by the SEC to the investors.

Last week one of the Crypto startup elliptic which is into crypto Risk Management Solutions has announced that Wells Fargo Strategic Capital which is one of the affiliates of Wells Fargo and Company has joined B funding series. Elliptic offers software solutions for Crypto transactions monitoring and investigation that empowers to trace illegal activity in cryptocurrencies.

Jayashree Ingle

CBW - External Analyst

INDIA