The latest fallout from the ongoing Wells Fargo scandal: Illinois State Treasurer Michael Frerichs has suspended $30 billion in investment activity with the bank.
The move was made in response to the bank’s acknowledgment that employees improperly opened more than 2 million bank accounts. Frerichs also cited a Sept. 29 settlement between Wells Fargo and the Department of Justice as factoring into his decision. The bank agreed to change its policies and pay over $4.1 million to resolve allegations that it violated the Servicemembers Civil Relief Act by repossessing 413 cars owned by protected military personnel without obtaining a court order.
“We have a choice where we invest taxpayer money. We will not reward companies that irresponsibly open new bank accounts and improperly repossess vehicles of members of our armed forces,” Frerichs said in a statement. “We also must determine if inactive bank accounts were involved. If so, there might be a violation of the state’s unclaimed property act similar to recent issues with unpaid life insurance policies and un-cashed rebate checks.”
The Illinois treasurer’s office uses Wells Fargo to fulfill a number of investment and banking needs for the state. As a result of “the predatory and illegal banking practices,” the following actions were taken: a suspension of investments in all Wells Fargo debt securities for one year; suspension of the use of Wells Fargo as a broker/dealer for the purchase of investments for one year; and authorization of a state audit to determine if improperly opening new bank accounts complied with Illinois law on returning unclaimed property to consumers. Similar audits of life insurance companies have identified more than $550 million that should have been paid to beneficiaries in Illinois.
The $30 billion is calculated by how much of the state’s investment portfolio passes through Wells Fargo in the course of a year. The amount is higher than the state’s $25 billion portfolio because it includes funds that eventually are spent to pay state bills and that move through the bank before reaching another financial institution. In the course of a year, the state treasury is involved in approximately $1 trillion in banking transactions.
The suspension of investment activity with Wells Fargo will remain in effect for one year. After this period, an evaluation of the bank’s corporate governance practices will be conducted.
In a related move, the Chicago City Council has approved a one-year suspension from doing business with the city for Wells Fargo. The ban includes bond underwriting and brokerage services.
Last month, California State Treasurer John Chiang directed his state to immediately suspend any financial relationships it has with the institution.