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With almost $2 trillion in assets, Wells Fargo is one of the largest and most important financial institutions in the world. It may also be one of the most complaint-plagued financial institutions of its size, with a history of controversies dating back decades. The bank and its executives have paid billions in fines to regulators like the Securities and Exchange Commission and the Financial Industry Regulatory Authority. It’s also faced harsh scrutiny from the Department of Labor, the Consumer Financial Protection Bureau, and the Federal Reserve.
Still, Wells Fargo serves approximately 70 million people in 35 countries—many of whom may not know about the company’s history of mistreating its customers. Let’s take a look at just a few examples of Wells Fargo’s misconduct.
Wells Fargo’s top executives misled investors about rampant sales practice complaint at the company’s banking arm, according to SEC charges filed last year. In a settlement reached with former CEO and Chairman John Stumpf, the SEC found that in 2015 and 2016, Stumpf provided the regulator with statements “he should have known were misleading” about Wells Fargo Community Bank’s “cross-sell” strategy, in which it sold financial products to its existing customers that they didn’t need and often didn’t use. The SEC also commenced litigation against Carrie Tolstedt, the former head of Wells Fargo Community Bank, alleging that from 2014 to 2015 she represented the cross-selling strategy “as a means of measuring Wells Fargo’s financial success despite the fact that this metric was inflated by accounts and services that were unused, unneeded, or unauthorized.”
These charges followed a February 2020 settlement with Wells Fargo, which agreed to pay $500 million to customers it sold unnecessary products and for whom it opened fake accounts. That $500 million payment to affected customers was part of a broader, $3 billion payment stemming from findings it misled millions of customers for almost 15 years. According to a 2020 New York Times report, Wells Fargo representatives “opened millions of accounts in customers’ names without their knowledge, signed unwitting account holders up for credit cards and bill payment programs, created fake personal identification numbers, forged signatures and even secretly transferred customers’ money” as part of the cross-selling strategy from 2002 to 2016.
As part of this strategy, junior employees were required to meet increasingly high sales goals set by company executives, using high-pressure sales tactics to get customers to purchase products they neither needed nor used. Once the SEC and Department of Justice began probing the strategy, Wells Fargo “quietly fired thousands of employees for falsifying records in response to customer complaints” during the strategy’s last five years, and brought disciplinary actions against “tens of thousands” of employees. As part of its settlement, Wells Fargo admitted it fabricated banking records.
Despite the intense regulatory scrutiny Wells Fargo received for the cross selling strategy, its representatives did not stop abusing their customers’ trust. Former Wells Fargo broker Tyler Rigsbee was barred by FINRA earlier this year over allegations he misappropriated client funds. According to a June 2021 report by ThinkAdvisor (and Rigsbee’s own FINRA records), Wells Fargo terminated the representative in April 2021 after an internal review found evidence of that Rigsbee’s personal bank account contained client funds which were “transferred from Wells Fargo to a third party broker dealer, and then on to his bank account, without permission.”
When FINRA commenced an inquiry into the matter and requested documents and information from Rigsbee, he declined to comply with the request—a violation of FINRA Rule 8210, concerning the provision of documents and information connected to FINRA investigations, and FINRA Rule 2010, which requires persons under FINRA’s jurisdiction to abide by high standards of commercial honor. FINRA subsequently barred the California-based advisor from associating with any of its member firms. Neither the report nor FINRA’s findings offer any details about the customers whose funds he allegedly stole.
Another recent regulatory action against Wells Fargo found that the firm failed to supervise its representatives’ recommendations that about 100 customers conduct variable annuity switches. According to FINRA, Wells Fargo representatives recommended “at least 101 potentially unsuitable switches” between 2011 and 2016, resulting in their customers paying surrender fees as well as “substantial new sales charges.” At the time, the firm’s rules required its supervisory personnel to determine whether product switches were suitable for the customers in question, in part by examining the costs incurred by the switch and the benefits of the new product. Those rules also included a requirement that Wells Fargo send clients “switch letters” to confirm that they understand the risks associated with switch transactions. In spite of these requirements, FINRA found, Wells Fargo did not conduct adequate supervisory reviews of the switches or send switch letters to its clients.
The unsuitable recommendations caused customers to incur considerable fees. In one case, according to FINRA, a Wells Fargo representative recommended their customer liquidate an annuity worth $126,681 in order to purchase mutual funds. The customer had to pay a surrender fee of $5,070 and then upfront sales charges of $5,531 for the mutual funds, which also “resulted in the customer earning less annual income than she would have earned had she not sold the variable annuity.” That same representative advised another customer to liquidate an annuity whose surrender value was $180,500, then purchase mutual funds and a unit investment trust. The customer incurred a surrender fee of $6,845 and paid $7,579 in upfront sales charges; like the first customer, he also earned less annual income from the new investments than he would have from the annuity.
According to FINRA’s findings, the unsuitable annuity switch recommendations resulted in a total of $1,445,167.50 in unnecessary fees and charges for the firm’s customers. FINRA ordered Wells Fargo to pay $1.4 million in restitution to the affected customers, as well as $657,000 in fines for its supervisory failures. FINRA’s enforcement head said in a statement about the action: “Firms must have a reasonable supervisory system in place to detect potentially unsuitable switches. Wells Fargo failed to meet this standard. We are pleased that customers will receive restitution for surrender fees and sales charges incurred as a result of these recommendations.”
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