WASHINGTON (Reuters) – Wells Fargo & Co (WFC.N) will pay $3 billion to resolve criminal and civil probes into fraudulent sales practices and admitted to pressuring employees in a fake-accounts scandal, U.S. officials said on Friday, wrapping up one of the last major investigations looming over the bank.
FILE PHOTO: A Wells Fargo logo is seen in New York City, U.S. January 10, 2017. REUTERS/Stephanie Keith
Wells Fargo will pay the penalties to the U.S. Justice Department and Securities and Exchange Commission and enter into a three-year deferred prosecution agreement during which the San Francisco-based bank will continue to cooperate with any ongoing government investigations, Justice Department officials said.
As part of the deal, Wells Fargo admitted that between 2002 and 2016 it pressured employees to meet “unrealistic sales goals that led thousands of employees to provide millions of accounts or products to customers under false pretenses or without consent, often by creating false records or misusing customers’ identities,” the department said in a statement.
In a statement, Charles Scharf, Wells Fargo’s new chief executive, described the past conduct as “reprehensible.” Wells Fargo is the fourth-largest U.S. lender.
“This case illustrates a complete failure of leadership at multiple levels within the bank. Simply put, Wells Fargo traded its hard-earned reputation for short-term profits, and harmed untold numbers of customers along the way,” Nick Hanna, U.S. attorney for the Central District of California, said in a statement.
Top managers within Wells Fargo’s Community Bank division were aware of the “unlawful and unethical” practices as early as 2002, and many of the practices were referred to as “gaming” within the bank, the Justice Department said.
The agreement resolves the civil and criminal liability regarding Wells Fargo’s fake-accounts scandal.
About $500 million of the penalties will go to the SEC to be distributed to investors to settle charges the bank committed fraud by misleading investors about its sales practices, an SEC official said on a call with reporters about the resolutions settlement.
Settling the multi-agency investigation marked an important milestone for Scharf, who joined the company from BNY Mellon in September shortly after the third anniversary of the scandal.
“We are committing all necessary resources to ensure that nothing like this happens again, while also driving Wells Fargo forward,” Scharf said.
The Justice Department investigation was seen by analysts and investors as a key hurdle the bank had to clear before it could focus on its growth strategy, which includes convincing the Federal Reserve to remove a cap imposed on its balance sheet.
The deal does not preclude civil or criminal charges against individuals, Justice Department officials told reporters.
In a rare move, a U.S. bank regulator charged several former Wells Fargo executives for their roles in the scandal last month.
Wells Fargo had already paid out more than $4 billion in fines and penalties related to the scandal since 2016.
Internal and external probes have uncovered issues in each of Wells Fargo’s major business lines, including wealth management and the commercial bank. The fallout has also resulted in the Federal Reserve imposing an unprecedented growth restriction on Wells Fargo’s balance sheet until it proves it has fixed its risk management and controls.
The U.S. House of Representatives Financial Services Committee is scheduled to hold three hearings on Wells Fargo’s conduct next month.
Over the past three years, Wells Fargo has taken various steps to fix its issues and rebuild trust with customers, investors and regulators. They include refreshing its board, centralizing risk teams and hiring an external chief executive. However, ongoing reputation issues and unresolved legal matters have weighed on the bank’s stock price and profitability, which have lagged peers since 2016.
Reporting by Chris Prentice and Pete Schroeder in Washington and Imani Moise and Karen Freifeld in Washington; Editing by Will Dunham