Wells Fargo & Company ( WFC - Free Report) took a hit recently after the Consumer Financial Protection Bureau (CFPB) fined the bank for opening millions of unauthorized accounts. In addition to the $190 million fine, the bank might also face a series of legal actions by its ex-employees and shareholders. ETFs that invest a notable portion of their assets in Wells Fargo are also getting affected by the scandal. Unauthorized Sales Scandal
The banking giant was recently
alleged of illegally opening 1.5 million deposit accounts in the name of customers who did not authorize the same. Moreover, the employees have also been alleged of applying for 565,000 credit cards, which were not permitted by customers. Also, debit cards were requested and issued without the consumers’ knowledge or consent and the employees went as far as creating PINs.
Out of the combined fine of $190 million, the bank will pay $100 million to the Consumer Financial Protection Bureau, the largest in the agency’s history, given the severity of the violations. Also, Wells Fargo will be paying $35 million and $50 million to the Office of Comptroller of the Currency, and City and County of Los Angeles, respectively. The rest of the amount will be paid in customer remediation (read:
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The situation has worsened further with the company facing a couple of lawsuits by former employees and shareholders. Two of the bank’s ex-employees, Alexander Polonsky and Brian Zaghi filed a
lawsuit in California Superior Court in Los Angeles County accusing that the bank's rigorous and illegal sales practices pushed employees to the verge of "breaking point."
These ex-employees, who were dismissed or demoted over the past 10 years, demanded at least $2.6 billion in damages. According to the complaint, “The biggest victims of Wells Fargo's scam are the class of victims that were fired because they did not meet these cross-sell quotas by engaging in the fraudulent scam that would line the CEO's pockets” (read:
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Separately, law firm Robbins Geller Rudman & Dowd LLP filed a lawsuit in San Francisco federal court targeting ‘
Cross-selling’ on behalf of all shareholders of the bank who bought the company’s stock between Feb 26, 2014 and Sep 15, 2016. The lawsuit was filed against John Stumpf – Chairman and CEO of Wells Fargo, Chief Financial Officer John Shrewsberry and Carrie L. Tolsted along with the bank. It accused that the bank’s cross-selling efforts to retail customers were “the product of a carefully designed system” and were not meant to fulfill customers’ need and satisfaction. Impact of the Scam
As an immediate response, 5,300 employees were fired by the bank. Wells Fargo refunded $2.6 million to customers for any charges associated with the products which they may not have requested. Notably, the accounts refunded represented just 1% of the accounts reviewed by a third party consulting firm and refunds averaged $25. The bank also stated that it’s making efforts for improved customer satisfaction while maintaining loyalty and ethics (read:
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Separately, John Stumpf is set to
forfeit all of his outstanding unvested stock awards of around $41 million. He has also agreed to forgo his salary during the investigation. Also, Carrie Tolstedt, who headed the company’s community banking unit, will forfeit all of her outstanding unvested equity awards of around $19 million. Additionally, both Stumpf and Tolstedt will not be awarded bonus for 2016. Financial ETFs to Watch
Shares of Wells Fargo witnessed a significant decline in recent times mostly led by its unauthorized sales scam. The bank lost 2.9% and 12.4% over the past five-sessions and in the trailing one-month, respectively (as of Sep 29, 2016). The financial ETFs that have a significant exposure to this banking behemoth were also negatively impacted by the scam (read:
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