Wells Fargo will pay $1 billion as part of the settlement of a lawsuit filed by investors in connection with the situation with authorized customer accounts.
This agreement on a legal solution to the problem was approved by U.S. District Judge Jennifer L. Rochon at the end of last week. As a result of this decision, the total amount of funds that the bank should direct to resolve the situation related to the scandal that arose due to the fake accounts of the lender reached the $5 billion mark.
The media, citing the plaintiffs’ lawyers, report that this transaction has already been included in the list of the six largest securities lawsuits over the past decade and is the 17th largest in history.
The settlement, the court decision on which was made last week, is related to the 2020 lawsuit. In this case, it was stated that the former CEO of Wells Fargo Tim Sloan, and other representatives of the management of the financial institution misled investors, Congress, and the media, claiming that the state of relations between the bank and regulators is positive, although in fact at that time the situation was completely different and had no positive signs.
The federal authorities found that the lender had set ambitious sales goals. This concept of activity from the point of view of the forces and means required for its implementation has caused the employees of a financial institution to open millions of fake accounts for customers in order to ensure the planned result. In many cases, Wells Fargo representatives created false records on the way to ambitious goals or used consumers’ personal information as part of illegal practices. Against the background of these actions, such negative consequences arose as fees in the amount of several million dollars and factors affecting the credit ratings of customers that worsened this indicator.
The media reports that as part of the settlement approved by the judge at the end of last week, the money will be provided to investors who became owners of shares of a financial institution in the period from February 2, 2018, to March 12, 2020. The lender also agreed to pay $800 million in two other claims over fictitious accounts. The financial institution will allocate another $3 billion to complete regulatory investigations.
In this case, the bank’s attempts to increase profits led to additional expenses. Similar situations arise when the stated goal significantly exceeds the available capabilities, as well as in cases of manipulation and the use of deception practices to obtain the desired result.
Criminal proceedings in the case of illegal actions of the creditor are ongoing. Carrie Tolstedt, the former head of Wells Fargo’s retail banking division, who pleaded guilty this year to involvement in obstructing an investigation into account opening practices, is awaiting sentencing. The prosecutor’s office is calling on the court to issue a one-year prison sentence against her, saying that she tried to hide from regulators what has become one of the largest scandals in the American banking sector in modern history.
The prosecutors also stated that following the results of this trial, all corporate violators should receive an unambiguous signal that attempts to stay in a lucrative position by behaving in violation of the law is an unjustified risk.
The media notes that the prosecution’s arguments contradict the recommendation of the US Probation Department that Carrie Tolstedt be sentenced to three years of probation.
At the same time, American consumers continue to trust the largest representatives of the banking sector of the United States, including Wells Fargo. Industry studies show that in the United States, about 30% of small and medium-sized enterprises, as part of meeting their financial needs, make a choice in favor of industry giants. For example, 39% of construction companies consider financial institutions such as Bank of America, Wells Fargo, and JPMorgan as the most likely provider of services when deciding on obtaining a loan. Also, about 34% of small enterprises in the field of professional services and almost 32% of retail and hotel businesses receive credit funds from the giants of the banking sector.
As we have reported earlier, SEC Accuses Wells Fargo of Overcharging Nearly 11,000 Investment Accounts With Advisory Fees.