Updated: Oct 20, 2022
Is this the downfall of one of America’s largest banks? Wells Fargo fined $3 billion for the committal of decade-long financial fraud.
Photo credit: Christopher Dilts, Bloomberg
In February 2020, one of America’s largest financial fraud cases settled for $3 billion. Between 2002 and 2016, Wells Fargo Bank (or Wells Fargo & Company) placed intensive pressure on staff to meet the 'onerous sales goals.' As a result, employees began misappropriating customers identities to open bank accounts; moving money to stimulate account funding; altering contact information to prevent customers from learning about unauthorised accounts, and employees enrolled customers in bill-pay services. Moreover, Wells Fargo harmed the credit ratings of certain individuals. In the investigations, Wells Fargo admitted to opening 3.5 million unauthorised accounts resulting in roughly $6.1 million in erroneous banking fees.
The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) reached a settlement of $3 billion with the American bank Wells Fargo; for their criminal and civil violations. U.S attorney Andrew Murray (Western District of North Carolina) stated, these fines “are appropriate given the staggering size, scope, and duration of Wells Fargo’s illicit conduct.”
Between 2016 and 2020 five consent orders were placed on Wells Fargo.
In 2016 the sales practice consent order fined Wells Fargo Bank $185 million in penalties for opening deposit and credit-card accounts without consumers' consent or knowledge. This order was made by the Consumer Financial Protection Bureau (CFPB), the Office of the Los Angeles City Attorney, and the Office of the Comptroller of the Currency (OCC). The CFPB mandated Wells Fargo to submit a compliance plan to redress harmed consumers and to retain an independent consultant to ensure adequate policies exist to ensure compliance with federal consumer financial law.
The 2018 Federal Reserve Consent Order placed an asset cap on Wells Fargo. This restricts the bank from growing larger than its total assets size as of 2017. Jerome Powell, the Chairman of the Federal Reserve said that this cap will remain until the “widespread consumer abuses and compliance breakdowns,” are completely addressed.
The Securities and Exchange Commission issued a cease-and-desist proceeding having found that Wells Fargo had violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. As the bank had misled shareholders by using self-inflated account numbers to express how they were able to sell current customers additional products, a process called cross-selling. The $3 billion settlement includes a $500 million civil penalty to be distributed by the SEC amongst investors.
Under the Financial Institutions Reform, Recovery and Enforcement act of 1989 (FIRREA) Wells Fargo has entered a civil settlement based on its creation of false bank records. FIRREA authorises the federal government to “seek civil penalties against financial institutions that violate various predicate criminal offenses.”
With the US Department of Justice (DOJ), Wells Fargo entered into a deferred prosecution agreement. Wells Fargo will be monitored for compliance with government investigations during a three-year period, ending 2023. The DOJ reserves the right to prosecute Wells Fargo if the criteria are not adhered to.
This settlement comes four years after the scandal first erupted, with $2.5 billion being paid to the Department of Justice. This financial fraud has drawn great attention to the issue and has resulted in the tightening of financial and consumer protection laws. Over the next fifteen-year period there will be continued supervision of Wells Fargo to ensure the bank upholds the law.
Settlement, a resolution or agreement between two or more parties that ends a dispute and results in a dismissal of any related litigation.
Deferred prosecution agreement, a voluntary alternative to adjudication in which a prosecutor agrees to grant amnesty in exchange for the defendant fulfilling certain requirements.
Consent orders, typically used in the United States, a consent agreement resolves a dispute between parties without an admission of guilt or liability.
Civil settlement, an agreement that prevents civil litigation from proceeding through the court system.
Cease-and-desist, is a document sent to an individual or business demanding they stop alleged illegal activity.
Financial fraud occurs when someone or an institution takes money or other assets from an individual or organisation through deception or criminal activity.