New York authorities blasted Wells Fargo on Monday for leaving investors in the dark about the toxic sales culture that spawned the bank’s fake-accounts scandal.
New York Attorney General Barbara Underwood accused Wells Fargo of making “fraudulent” statements to shareholders over “many years” about its business model and notorious sales tactics.
“The misconduct at Wells Fargo was widespread across the bank and at every level of management -— impacting both customers and investors who were misled,” Underwood said in a statement.
For years, Wells Fargo touted its ability to sell customers multiple products, an industry practice known as “cross-selling.” The bank regularly pointed to this sales success in its earnings reports as a way to grow revenue and retain customers.
But Underwood’s office slammed Wells Fargo for failing to disclose to investors that its cross-sell prowess was “built on sales practice misconduct.”
The bank has admitted that unrealistic sales goals led employees to open up to 3.5 million fake bank and credit card accounts without customers’ knowledge. Wells Fargo workers faced relentless pressure to meet their sales targets, and were rewarded with bonuses and promotions when they did so.
Wells Fargo shareholders lost money when the bank’s stock underperformed in the wake of the fake-accounts scandal. A wave of legal trouble has dinged Wells Fargo’s profits and tarnished its reputation.
The New York settlement said that Wells Fargo failed to alert investors about the “systemic problems” in its sales tactics. That’s despite the fact that former Wells Fargo CEO John Stumpf told Congress he became aware of widespread fraud by employees in 2013. And Wells Fargo’s board of directors received reports about increasing allegations as early as 2011.
New York officials pointed to a June 2011 email in which a member of the bank’s incentive compensation team acknowledged misconduct. “I’ve asked bankers… why people cheat… it’s because their manager tells them they’ll be fired if they don’t hit their minimums,” the email said.
NY officials continue to investigate
In a statement, Wells Fargo emphasized that it did not admit liability. “We believe that putting this matter behind us is in the best interest of all of our stakeholders, including customers,” the bank said, adding that it previously set aside money to cover the cost of the settlement.
Wells Fargo emphasized that the claims in the settlement related to product sales goals that were eliminated in 2016. “We remain focused on transforming Wells Fargo into a better company for our customers and other stakeholders,” the company said.
But Wells Fargo is not out of the woods with New York regulators. Underwood’s office said it’s continuing to investigate Wells Fargo’s “illegal business practices,” including enrolling customers in services without their knowledge or consent. Wells Fargo has said it charged thousands of customers for car insurance they didn’t need. The bank has also refunded customers who were charged for pet insurance and other products they didn’t fully understand.
Underwood pledged to continue to protect working families and investors from financial fraud by using the Martin Act, a state securities law that gives authorities vast enforcement powers.
In May, Wells Fargo agreed to pay $480 million to settle a class-action securities fraud lawsuit brought by investors who alleged the bank made misstatements and omissions in its disclosures about sales practices.