Wells Fargo & Company WFC has entered into a deal with the U.S. Department of Justice and the Securities and Exchange Commission (“SEC”) in order to settle a fake account openings scandal that proved to be a major setback for the company since its breakout.
Wells Fargo admitted to have wrongly collected millions of dollars in fees and interests from customers. It also agreed to have the credit ratings of certain customers and unlawfully misused customers’ sensitive personal information, including their means of identification.
“This settlement holds Wells Fargo accountable for tolerating fraudulent conduct that is remarkable both for its duration and scope, and for its blatant disregard of customer’s private information. The Civil Division will continue to use all available tools to protect the American public from fraud and abuse, including misconduct by or against their financial institutions.”, said Deputy Assistant Attorney General Michael D. Granston of the DoJ Civil Division.
The settlement comes in the form of a deferred prosecution agreement, whereby Wells Fargo will not be prosecuted over a three-year period, provided it abides by certain conditions including continued cooperation with further government investigations.
The company has signed a civil settlement agreement under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 based on its creation of false bank records.
Further, Wells Fargo settled SEC’s civil investigation with an administrative order, under which it has agreed to establish a $500-million Fair Fund for the benefit of investors who were harmed by the conduct covered in the agreement.
Per the regulators, Wells Fargo’s continued cooperation and substantial assistance with the government’s investigations, admission to wrongdoing, prudent remedial actions over a period of time, an enhanced compliance program, and significant work to identify and compensate customers who may have been wronged were all contributing factors that led to settlement.
The major settlement relates to the revelation of a sales scam, wherein the bank’s employees allegedly opened millions of unauthorized accounts illegally to meet aggressive internal sales goals.
The news broke out in September 2016, post which, the company was subjected to investigations of several departments and businesses. As a result, a cap on Wells Fargo’s asset growth was imposed by the authorities. This will remain in place until the bank is able to give a reasonable assurance of staying out of trouble. The revelation also led to several layoffs and restructuring of operations.
Further, former CEO John Stumpf was banned from the banking industry last month and was charged along with seven other former executives, was charged a penalty of more than $58 million for involvement in the bank’s improper practices.
Though this settlement will help Wells Fargo to overcome a major hurdle, the bank’s financials will continue to be affected by other ongoing probes.
The company continues to enhance compliance and operational risk management systems, along with timely remediation practices. Also, Wells Fargo is spending more on technology to ensure better data management and cybersecurity. These activities, along with close supervision of regulatory authorities, might help Wells Fargo move past the scandals and make way for growth.
Shares of the company have lost 3.9% over the past year against 13.6% growth recorded by the industry it belongs to.
Wells Fargo currently carries a Zacks Rank #3 (Hold).
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