Wells Fargo and Its Advisors Under Investigation by Regulators and State
Over the past two months, Wells Fargo has gone from a large banking institution
with branches on every corner of the United States to one under fire by
almost every media outlet. It started with allegations of aggressive,
improper sales practices. Employees had been encouraged to create unauthorized
accounts for customers in order to meet impossible sales quotas. The scandal
has continued to unfold, and now there seems to be an endless fountain
of new allegations.
Regulators and law enforcement agencies at federal and state levels are
busy with investigations into the company. In fact, there are so many
issues associated with the Wells Fargo scandal that it can be hard to
keep track of them all. Here are just a few of the current investigations
into the company’s practices.
The Consumer Financial Protection Bureau (CFPB), an organization tasked
with the lofty goal of protecting consumers in the financial markets,
conducted the investigation that first brought the scandal to the public’s
attention. Its investigation revealed multiple violations of the Dodd-Frank
Act, including opening accounts, transferring funds, activating debt cards,
and applying for credit cards _without customers’ permission. The
CFPB fined Wells Fargo $100 million for these egregious violations and
misappropriation of its customers’ trust.
According to numerous reports from prior employees, Wells Fargo not only
encouraged them to engage in unethical behavior to meet sales quotas,
it also punished them through reprimands, demotions, and loss of employment
when they did not comply. The Department of Labor’s Occupational
Safety and Health Administration (OSHA) is reviewing the complaints filed
with its office since 2010. In addition to investigating these allegations
of retaliation, OSHA is also looking into other potential labor law violations
which may have occurred, such as Wells Fargo failing to pay overtime for
additional work performed as workers tried to meet these quotas.
When licensed financial professionals are terminated, their employers
must file a form with the Financial Industry Regulatory Authority (FINRA)
detailing the reason for the termination. Wells Fargo alleges that roughly
600 of these licensed employees have been fired for creating unauthorized
accounts since 2011. It is currently unclear whether the FINRA notices
for about 400 employees accurately stated the reason for termination,
or whether they fraudulently listed other reasons for termination. FINRA
has advised that the investigation is still in its beginning stages.
The Justice Department and multiple state attorneys general have launched
investigations to determine whether there are any additional civil or
criminal violations that warrant bringing suit against Wells Fargo. Details
about these investigations are still unknown, but more information will
likely emerge in the coming weeks and months. Though criminal charges
are not likely. We do know that California’s attorney general is
looking into whether Wells Fargo stole the identities of its customers.
As part of this investigation, authorities have already served a warrant
seeking more details about the unauthorized accounts.
The Securities and Exchange Commission (SEC), the federal agency that
regulates, among other things, required financial disclosures by publicly
traded companies, is investigating a number of potential rule and legal
violations by Wells Fargo. One the possible violation is whether Wells
Fargo executives violated the Sarbanes-Oxley act (which protects investors
from corporate fraud) when they signed off on certain financial reports.
The SEC is also investigating whether failing to disclose the unauthorized
accounts and retaliating against whistle-blowing employees amounts to
In addition to these investigations, many former Wells Fargo employees,
customers, and investors are looking into their own cases to determine
whether they may have individual claims against the company.
Given this wide array of investigations, it is not surprising that Wells
Fargo estimates their legal costs will exceed one billion dollars.
Criminal charges by the Department of Justice, if recent history is any
guide, are unlikely. In the past several years many banks (HSBC, Standard
Chartered, Credit Suisse abd Barclays, etc) have paid financial penalties
for activities that would appear to be both serious and criminal, but
none have been prosecuted.