Wells Fargo fined $3bn over fake bank accounts

US regulators have slapped a $3bn (£2.3bn) fine on Wells Fargo bank over a long running scandal which saw its employees create millions of fake accounts in order to hit ambitious sales targets

The penalty is the result of investigations by both the US Department of Justice (DoJ) and the Securities and Exchange Commission (SEC) and relates to the bank’s activities between 2002 and 2016.

Over this period, Wells Fargo pressured employees to meet unrealistic sales goals that led thousands of employees to provide millions of accounts or products to customers under false pretences or without consent, often by creating false records or misusing customers’ identities, according to the DoJ.

The bank has struck a deferred prosecution agreement (DPA) with the DoJ, and has admitted that it collected millions of dollars in fees and interest to which it was not entitled, harmed the credit ratings of certain customers, and unlawfully misused customers’ sensitive personal information, including customers’ means of identification.

Andrew Murray, US attorney for the western district of North Carolina, said: ‘Our settlement with Wells Fargo, and the $3bn monetary penalty imposed on the bank, go far beyond “the cost of doing business.”

‘They are appropriate given the staggering size, scope and duration of Wells Fargo’s illicit conduct, which spanned well over a decade.

‘Today’s announcement should serve as a stark reminder that no institution is too big, too powerful, or too well-known to be held accountable and face enforcement action for its wrongdoings.’

The 16-page statement of facts accompanying the deferred prosecution agreement outlines a course of conduct over 15 years at Well Fargo’s Community Bank, which was then the largest operating segment of Wells Fargo, consistently generating more than half of the company’s revenue. 

Beginning in 1998, Wells Fargo increased its focus on sales volume and reliance on annual sales growth. 

A core part of this sales model was the ‘cross-sell strategy’ to sell existing customers additional financial products.

In response the Community Bank implemented a volume-based sales model in which employees were directed and pressured to sell large volumes of products to existing customers, often with little regard to actual customer need or expected use.

Fraudulent activity

Many of these practices were referred to within Wells Fargo as ‘gaming.’ Gaming strategies included using existing customers’ identities – without their consent – to open checking and savings, debit card, credit card, bill pay and global remittance accounts.

They also included forging customer signatures to open accounts without authorisation, creating PINs to activate unauthorised debit cards, moving money from millions of customer accounts to unauthorised accounts in a practice known internally as ‘simulated funding’.

They were also opening credit cards and bill pay products without authorisation, altering customers’ true contact information to prevent customers from learning of unauthorised accounts and prevent Wells Fargo employees from reaching customers to conduct customer satisfaction surveys, and encouraging customers to open accounts they neither wanted or needed.

The top managers of the Community Bank were aware of the unlawful and unethical gaming practices as early as 2002, and one internal investigator in 2004 called the problem a ‘growing plague.’

The following year, another internal investigator said the problem was ‘spiraling out of control.’  Even after senior managers in the Community Bank directly called into question the implementation of the cross-sell strategy, Community Bank senior leadership refused to alter the sales model.

As part of the overall settlement, Wells Fargo is to pay $500m to the SEC, which will be returned to investors via a ‘Fair Fund’.

Stephanie Avakian, co-director of the SEC’s division of enforcement, said: ‘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.

‘This settlement holds Wells Fargo responsible for its fraud and furthers the SEC’s goal of returning funds to harmed investors.’

Charlie Scharf, Wells Fargo CEO, said: ‘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.

‘Over the past three years, we have made fundamental changes to our business model, compensation programs, leadership and governance.

‘While today’s announcement is a significant step in bringing this chapter to a close, there is still more work we must do to rebuild the trust we lost. We are committing all necessary resources to ensure that nothing like this happens again, while also driving Wells Fargo forward.’

Securities and Exchange Commission (SEC) order

US Department of Justice (DoJ) statement of facts

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