The Department of Justice and Securities and Exchange Commission on Friday assessed total civil and criminal penalties of $3 billion against Wells Fargo & Co. and its subsidiary, Wells Fargo Bank, in the aftermath of its fake account scandal.
According to the DOJ, the settlement resolves three separate matters resulting from a years-long practice of what it described as “pressuring employees to meet unrealistic sales goals, which led thousands of employees to provide millions of accounts or products to customers under false pretenses or without consent, often by creating false records or misusing customers’ identities.”
Under the agreement with the U.S. Attorney’s Offices for the Central District of California and the Western District of North Carolina, the Justice Department’s Civil Division, and the SEC, Wells Fargo admitted to collecting millions of dollars in fees and interest to which it wasn’t entitled, harmed the credit ratings of certain customers, and unlawfully misused customers’ sensitive personal information. “This case illustrates a complete failure of leadership at multiple levels within the bank,” said U.S. Attorney Nick Hanna in a news release.
As part of the settlement, Wells Fargo entered into a three-year deferred prosecution agreement with the Justice Department. No charges will be filed against Wells Fargo provided it abides by all the terms of the agreement.
The DOJ determined, “based upon Wells Fargo’s remediation and the fact that it is operating under the close supervision of its prudential regulators,” that an independent compliance monitor was “unnecessary.”
Wells Fargo also entered a separate civil settlement agreement under the Financial Institutions Reform, Recovery and Enforcement Act for creating false bank records. Wells Fargo agreed to the SEC instituting a cease-and-desist proceeding finding violations of Section 10(b) of the Exchange Act and Rule 10b-5. The $3 billion payment resolves all three matters and includes a $500 million civil penalty to be distributed by the SEC to investors.
The government’s decision to enter into the DPA and civil settlement considered numerous factors, including Wells Fargo’s extensive cooperation and substantial assistance with the government’s investigations; its admission of wrongdoing; its continued cooperation with investigators; its prior settlements in a series of regulatory and civil actions; and remedial actions, including significant changes in Wells Fargo’s management and its board of directors, an enhanced compliance program, and significant work to identify and compensate customers who may have been victims.
“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,” said Chief Executive Officer Charlie Scharf in a statement. “Over the past three years, we’ve 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’s still more work we must do to rebuild the trust we lost,” Scharf added. “We are committing all necessary resources to ensure that nothing like this happens again, while also driving Wells Fargo forward.”
Wells Fargo said it had fully accrued for the amount of the settlement as of Dec. 31, 2019.
Wells Fargo’s admitted wrongdoing took place from 2002 to 2016 and resulted in the departure of two CEOs. John Stumpf, who had held the position since 2007, retired in October 2016 not long after the regulatory heat was first turned up on the bank, and his successor, Timothy Sloan, abrupty stepped down in March 2019 amid criticism that his more than 30 years at the company made him just as culpable in the scandal. Stumpf last month was banned from the banking industry and agreed to pay a $17.5 million civil penalty to the Office of the Comptroller of the Currency for his role in failing to prevent the misconduct.
Scharf was hired as CEO in September 2019.
Also on Friday, the House Financial Services Committee announced “holding Wells Fargo accountable” would be the focus of three hearings next month.