Last week didn’t end on the best footing for California-based Wells Fargo & Co., with the Securities and Exchange Commission (SEC) announcing on Friday that it has charged the company for misleading investors, imposing a hefty $500 million fine.
In particular, the US regulator states that Wells Fargo misled investors about the success of its core business strategy when it was opening fake accounts for unaware customers and selling products that weren’t being used.
Under an agreement with the regulator, the financial services company has agreed to pay $500 million to settle the charges. This money will be returned to investors. The fine announced on Friday is part of a combined $3 billion settlement with the SEC and the Department of Justice.
Commenting on the fine, Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement, said: “Wells Fargo repeatedly misled investors, including through a misleading performance metric, about what it claimed to be the cornerstone of its Community Bank business model and its ability to grow revenue and earnings. This settlement holds Wells Fargo responsible for its fraud and furthers the SEC’s goal of returning funds to harmed investors.”
Between 2012 and 2016, according to the order from the SEC, Wells Fargo advertised that investors were having success via its Community Bank’s “cross-sell” strategy, which is the selling of additional financial products to existing customers. This was characterized as a key component of its financial success.
However, according to the US watchdog, the financial firm actively tried to make investors reliant on the cross-sell metric, despite the fact that it was inflated by accounts and services that weren’t used, needed or authorized.
Wells Fargo ordered to cease and desist
Because of this, the SEC’s order finds that Wells Fargo has violated the antifraud provisions of the Securities Exchange Act of 1934. In addition to paying the fine, the company has agreed to cease and desist from committing or causing any future violations of these provisions.
(Photo: Wells Fargo facebook page)