It seems that we may not have yet seen the end of the Wells Fargo accounts scandal. The Justice Department has taken an increased interest in Wells Fargo’s wealth-management unit following whistle-blower claims that the bank’s wealth-management customers have been affected. According to a Wall Street Journal (WSJ) article, the Justice Department ordered Wells Fargo to conduct an investigation into the bank’s own wealth-management business, in response to claims of unfair practices. The investigation into any potential wrong-doing is the first focused on services offered by Wells Fargo outside banking, namely its financial and investment advisory business.

The well runs deep…Or rather, Wells runs deep

While it is the first examination into its wealth-management business, it is only the latest inquiry into the bank’s systemic history of engaging in unfair practices against consumers, uncovered in 2016 as part of an investigation by the Consumer Financial Protection Bureau (CFPB). The CFPB’s investigation revealed that branch employees had created over 2 million fraudulent accounts and services in order to meet unrealistic sales goals imposed by the bank. Thousands of Wells Fargo customers were subject to fees accrued through accounts they had never created and charged for services they had never requested. That discovery resulted in the largest fine ever imposed by the CFPB in the organization’s history, and the aftermath led to an end to Wells Fargo’s sales goals along with the termination over over 5,000 Wells employees and resignation of the bank’s CEO. Things came to a head again in 2017 with more false accounts being uncovered. When the dust seemed to finally settle, the number of false accounts had ballooned from 2 to nearly 4 million, with the bank being ordered to pay back millions in credits and refunds to customers. Additionally, the Federal Reserve placed a series of serious growth restrictions on the bank.

Fed Restrictions

The sanctions imposed by the Fed are some of the most uniquely harsh the central bank has ever set forth. The represent the final order of outgoing Fed-chair, Janet Yellen. In a statement given following the order in February, Yellen’s harsh tone reflects the harsh restrictions set forth:

“We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again… The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers.”

Under the sanctions, Wells may conduct on-going business like accepting deposits and offering loans, however any other growth strategies have been halted. What this essentially means is an all-out freeze on doing any business that would grow its current $1.95 trillion asset portfolio. And, until The Fed deems that Wells Fargo has ‘cleaned up its act’ – including a C-Suite-level purge – , those sanctions don’t appear to be lifted anytime soon.

What does it mean for Wells Fargo’s wealth-management business?

This is already proving to have serious repercussions, as financial analysts are beginning to slash Well’s investment ratings. It could also majorly effect its wealth-management advisory business. Institutions like Wells Fargo recruit advisors to manage their various wealth-management service offerings. As such, they are not employees of Wells Fargo, but independent advisors contracted through the bank. If Wells Fargo’s wealth-management business looses face in the public eye, advisors are the ones directly affected. This could spell serious trouble for Wells’ advisory recruiters approaching reps. It could also result in an advisor-flight from Wells; those seeking to separate themselves from any hint of scandal. In fact, Wells’ wealth-management business has already been hit with hundreds of millions of dollars in losses from the exits of brokers managing high-dollar accounts.

Have wealth-management customers been affected?

While the initial scandal appeared only to affect Wells’ credit services customers, the WSJ article raises new questions about whether customers of other service-offerings by the bank may have been affected, namely wealth-management customers. According to the WSJ article, the bank initiated an independent investigation of several aspects of its wealth-management business, including that relating to 401(k) and alternative investment plans. The review is still in “preliminary stages”, so remains unclear to what extent customer accounts have been affected. However, the investigation has sparked concerns in the financial industry, especially among advisors. In addition to the Justice Department’s inquiry, Bloomberg also reports that Wells may be facing an investigation by the Securities and Exchange Commission (SEC) to determine whether an in-house, investment services system directed at the bank’s wealth-management customers violated securities laws.

What can wealth-management customers do?

While its currently indeterminate as to what extent this has affected customers, if you have any investments serviced through Wells Fargo you should contact your advisor or Wells Fargo account representative for more information. You should also make sure to review any recent account statements over the past year. This is especially important if you have any alternative investment wealth assets. If you have any 401(k) investments or if you hold any fiduciary or custody accounts with Wells Fargo, you should be aware of all fees assessed on your account(s).

Additional Resources

To report a securities complaint to the SEC, complete this form. To find out more about your investment-loss protection and recovery options, contact our team. You can find out more about this issue as it unfolds and other securities law & investment news from our blog.

More Than Previously Expected

Now it looks like it’s going to take a lot more than they thought. According to a recent Reuters report, the number of individuals affected by the accounts fraud scandal is far more than previously expected. In fact, it’s nearly double the initial figure. What was once nearly 2 million unauthorized account creations has now ballooned into 3.5 million. While the recent estimate is based on new case discoveries and hearings, Wells Fargo attorneys claim that it is largely “hypothetical” and “unverified”. Attorneys representing plaintiffs concur that it may be “over-inclusive”, but that the estimation provides a reasonable base for total compensation to plaintiffs.

Can a Settlement Be Reached?

Understandably, Wells Fargo has been keen to settle the matter. The big bank’s attorneys have already increased its initial settlement figures from $110 million to $142 million to account for more-than-expected numbers of affected accounts.

Preventing Future Accounts Fraud

The best method of preventing becoming a victim to accounts fraud is through awareness and education. Don’t be intimidated by big banks. You have the right to financial security. Make sure you regularly review all current accounts and monthly statements with any financial institution. You can follow our blog to stay up to date on legal tips, news and insights. Contact us with any legal questions or concerns regarding you financial security.

Some of the nation’s top banks are facing another bad week, legally and financially as they are subjected to increased scrutiny and demand for reparations from federal regulators. Wells Fargo faces a continued inquest into the extent of its accounts fraud scandal as regional and municipal governments, including Hillsborough County, look further into their interests with the banking giant. A top financial regulator in Massachusetts is now charging Morgan Stanley with unethical conduct following a claim of a sales contest among Morgan Stanley brokers pushing securities-backed loans onto clients. Additionally, German banking giant Deutsche Bank is facing slipping stocks and credibility as it struggles to reach a conclusion with U.S. courts over an up to $14 billion fine for mis-selling mortgage-backed securities, according to a report from Reuters. The report states that Deutsche Bank’s U.S. stock-holdings fell about 2.8 percent.

Déja Vu with Morgan Stanley?

Though Morgan Stanley vehemently denies the charges put forth by William Galvin, Secretary of the Commonwealth, that the company is guilty of unethical conduct, it does not deny the existence of the sales contest. The contest involved cross-selling banking products, mostly securties-based loans, to Morgan Stanley’s brokerage clients. Glavin’s claim asserts that this cultivated a “high pressure” environment to meet contest goals that was against Morgan Stanley’s corporate policy. Morgan Stanley did suspend the contest after the contest was discovered to be inconsistent with corporate policies, but maintain that no accounts were opened without customer understanding and consent.

Tensions Running High

Public opinion and federal regulators are taking a vigorous and critical look at big banking tactics following the Wells Fargo scandal. With the aftermath of the 2008 financial crisis still looming in the economy’s rear-view, regulators and banking customers raise concerns over fundamental flaws in ethical banking procedures and continue to examine banks’ financial interests.

Big banks on Wall Street had been left unchecked for too long and the introduction of sub-prime lending tactics sealed the fate of U.S. financial stability. A culture of smoke-and-mirrors misleading consumers, coupled with a dire lack of regulatory oversight allowed big banks to run rampant. Years of bad banking tactics caught up with the U.S. economy in 2008, resulting in the worst economic recession seen in the country since the “Great Depression” of the 1930s. The effects were devastating.

The Effect

The fall-out left the country reeling. As Wall Street’s house-of-cards collapsed, consumers and legislatures were left scrambling to figure out what happened. Businesses folded, people lost jobs and housing, investments were liquidated and stocks bottomed out. As the dust began to settle and the economy eventually showed signs of re-righting itself, legislators gave the accountable parties a stern talking to and, for their part, big banks promised to change. And it seemed that way for a while…

Business as Usual for Big Banks

The recent scandal involving Wells Fargo’s accounts fraud has demanded a refreshed scrutiny of big banking ethics and practices and what we are finding is troubling. It seems that no lesson has been learned at all and big banks continue to be a breeding ground for greed and deceit. Wells Fargo is just the latest of the nation’s largest banks cultivating a pervasive, toxic culture. A report in Reuters shows that recently, in addition to illegal financial practices, banks also use coercion and bribery as regular means of business.

Broken Promises

Clearly, big banks have not learned the harsh lessons of the 2008 financial crisis. They continue to take advantage of consumers by taking money out of people’s pockets to line their own. Don’t be intimidated or mislead by big banks. If you believe that you have been victimized by big banking tactics or have suffered a financial loss at the hands of investment banks, contact Savage Villoch, PLLC today and get the tools to fight back.