Risk & Compliance

SEC Joins Scrutiny of Wells Fargo Sales Practices

The bank discloses another investigation of the sham-accounts scandal that has sparked customer outrage and a $185 million settlement.
Matthew HellerNovember 3, 2016
SEC Joins Scrutiny of Wells Fargo Sales Practices

The U.S. Securities and Exchange Commission has joined the list of government agencies investigating Wells Fargo over the creation of unauthorized customer accounts by its employees.

The bank disclosed Thursday in a regulatory filing that the SEC is among the agencies that “have undertaken formal or informal inquiries, investigations or examinations arising out of certain sales practices of the company.”

It provided no further details but The Wall Street Journal reported that the SEC is looking into whether Wells Fargo violated rules around investor disclosures while it allegedly engaged in the illegal sales practices. A person familiar with the matter told the WSJ the investigation is in an “early stage.”

“The company has responded, and continues to respond, to requests from a number of [agencies] seeking information regarding these sales practices,” Wells Fargo said.

After the Los Angeles city attorney’s office and federal bank regulators announced a $185-million settlement with Wells Fargo in September,  three Democratic senators called for the SEC to investigate whether the bank misled investors and violated whistleblower protections by firing employees who tried to report misconduct.

Among other things, the senators said, an investigation could focus on whether Wells Fargo executives violated the internal-controls provision of Sarbanes-Oxley by signing off on inaccurate financial reporting.

In addition to investigations, the sham-accounts scandal has sparked customer outrage and the retirement of Wells Fargo CEO John Stumpf. His successor, Tim Sloan, said Thursday that an independent consultant will be examining practices in the retail bank as well as the rest of the company.

“I don’t want there to be a question about how we interact with customers at Wells Fargo,” Sloan told a banking conference in Boston. “We’re going to put that to rest.”

Wells Fargo hasn’t disclosed the amount it has set aside to cover legal costs, but Thursday’s SEC filing said the “high end of the range of reasonably possible potential litigation losses” was approximately $1.7 billion as of Sept. 30, a $700 million increase over the previous quarter.

The California attorney general has been investigating whether bank employees committed identity theft when they created the unauthorized accounts.

Case Study: How Edgewood Tahoe’s CFO Saved 500 Jobs From the Ashes