Former Wells Fargo execs misled investors on sales scandal, SEC alleges
The Securities and Exchange Commission on Friday accused former Wells Fargo executives John Stumpf and Carrie Tolstedt of misleading investors, the latest consequence of the bank’s sales scandal.
Stumpf and Tolstedt made statements that duped investors and the public to the value of Wells Fargo stock, the SEC said. Stumpf paid a $2.5 million fine to resolve the charges without admitting or denying the findings. Tolstedt has not settled with the SEC and her lawyer said Tolstedt plans to clear her name.
Over more than a decade, hundreds of thousands of Wells Fargo employees took part in sham sales practices, opening millions of fake accounts in customers’ names to meet unreasonably high sales goals.
In February, the bank agreed to pay a $3 billion fine to federal prosecutors and the SEC for the practices. The bank also acknowledged in the February settlement that Wells Fargo management knew about what was going on, turned a blind eye to the practices and minimized the issue to the company’s board.
Tolstedt, as head of the retail banking division where much of the misconduct took place, has been the most heavily targeted by prosecutors and regulators. She was a top booster of the “cross-sell” metric — basically, increasing the number of accounts and products that customers had at the bank.
Boosting the number of products that a customer has with a bank is a common practice across the industry. But at Wells Fargo, the ideal number of products bankers were told to sell to customers was not reasonable, and management knew it, regulators said earlier this year. That induced thousands of employees to engage in what ended up amounting to widespread bank fraud, creating millions of fake accounts and products in customers’ names without their consent, prosecutors and regulators have found.
The SEC’s role
In Friday’s move, the SEC, which regulates the bank’s stock, took issue with Tolstedt’s endorsement of Wells Fargo’s cross-sell metric as a measure of the bank’s financial success. The federal agency said that Tolstedt misled investors and the public in statements because, in part, the metric was inflated by accounts and services that were unused, unneeded, or unauthorized. Tolstedt “knew or was reckless in not knowing” that her statements were “materially false and misleading,” the SEC said.
Enu Mainigi, a lawyer for Tolstedt, said in a statement that it was “unfair and unfounded for the SEC to point the finger at Ms. Tolstedt when her statements were not only true but also thoroughly vetted by others as part of Wells Fargo’s policies, procedures and systems of controls.
“Ms. Tolstedt acted appropriately, transparently and in good faith at all times,” Mainigi said. “We look forward to setting the record straight and clearing her name.” Tolstedt retired from Wells Fargo in 2016.
The Office of the Comptroller of the Currency, Wells Fargo’s federal regulator, is trying to ban Tolstedt from banking and fine her $25 million. She is fighting the effort.
Stumpf, who served as the bank’s CEO from 2007-16, “learned of facts that put, or should have put, him on notice about material inaccuracies,” in the bank’s financials, the SEC said Friday. He has already been banned from the banking industry by the OCC.
“If executives speak about a key performance metric to promote their business, they must do so fully and accurately,” Stephanie Avakian, the SEC’s enforcement head, said in a statement. Richard Strassberg, a lawyer for Stumpf, declined to comment.
Peter Gilchrist, a Wells Fargo spokesman, declined to comment on Friday’s announcement. A January message from CEO Charlie Scharf called the bank’s past actions “inexcusable” and that while the bank is “different today,” that “we know we still have significant work to do to regain the trust of all stakeholders.”
Three other former Wells Fargo executives were fined by the bank’s regulator in September. The executives were all key lieutenants under Tolstedt.
This story was originally published November 13, 2020 at 2:02 PM.