California slaps Wells Fargo Bank with sanctions
The state of California is imposing sanctions against Wells Fargo, including suspending investment in hundreds of millions of dollars in securities for the next year, because of revelations that the San Francisco-based bank created as many as 2 million phony accounts.
State Treasurer John Chiang announced the sanctions at an appearance in San Francisco Wednesday morning and in a letter to Wells Fargo chairman John Stumpf.
The treasurer’s office currently invests $800 million in Wells Fargo securities that are all due to expire in the next few months. Normally, the state might renew its investments in those securities but will instead let them expire, effectively withdrawing that amount.
Chiang also announced that the state would suspend Wells Fargo as a broker-dealer for purchasing investments and Chiang would no longer appoint the bank as an underwriter for sales of state bonds. Since the start of 2015, Wells Fargo has been appointed as an underwriter 20 times.
The treasurer will also argue for similar steps by both the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, which combined have more than $2.3 billion invested in Wells Fargo securities and equity.
As a board member for both systems, Chiang has successfully argued for divestments by the retirement systems from certain companies and industries in the past, according to the state treasurer’s office.
Chiang wrote in the letter to Stumpf:
“The recent discovery that Wells Fargo & Company fleeced its customers by opening fraudulent accounts for the purpose of extracting millions in illegal fees demonstrates, at best, a reckless lack of institutional control, and, at worst, a culture which actively promotes wanton greed.”
The sanctions will remain in effect for the next 12 months, provided Wells Fargo complies with the terms of a consent order issued earlier this month by the U.S. Consumer Financial Protection Bureau.
The Consumer Financial Protection Bureau announced the consent order with Wells Fargo on Sept. 8. In it, the bank agreed to pay $185 million in fines for creating about 1.5 million bank accounts and 565,000 credit card accounts that may not have been authorized by consumers.
The penalties include a $100 million fine levied by the bureau — the largest in the agency’s history — as well as $35 million paid to the U.S. Office of the Comptroller of the Currency and $50 million to the city of Los Angeles for its role in the investigation.
Wells Fargo has already fired 5,300 employees for improper sale practices since 2011, according to the consent order. The workers would gain incentives by the creation of new accounts and would temporarily transfer money out of customers’ accounts without authorization using fake email addresses and creating false personal identification numbers to open phony new accounts.
In addition to the sanctions, Wells Fargo is also facing a lawsuit by a San Carlos shareholder seeking a seeking a clawback of improper profits from bank executives.
The state’s sanctions will be effective for the next year, but could be continued and even made permanent if the bank is found to not be in compliance with the consent order. The treasurer’s hope is that the sanctions act as an incentive to rehabilitate its business practices.
Wells Fargo spokesman Ruben Pulido said in a statement that the company is ready to work with the state in the future:
“We certainly understand the concerns that have been raised. We are very sorry and take full responsibility for the incidents in our retail bank. We have already taken important steps, and will continue to do so, to address these issues and rebuild your trust.”