Is Wells Fargo a Criminal Enterprise?

Something is really wrong with Wells Fargo & Co. (NYSE: WFC), the third largest bank in the United States by assets and the eleventh biggest bank in the world.

After being hit with massive fines and paying out tens of billions of dollars to settle a litany of charges, Wells Fargo's facing more investigations from the U.S. Department of Justice (DOJ).

And there's no doubt that this would be the last of them.

So, I ask you, is Wells Fargo a criminal enterprise?

Before you comment – here's my answer, what I think should happen to Wells Fargo, and how crooks like the ones at Wells are going to bring the economy to its knees...

Meet the New Boss, Same as the Old Boss

The latest DOJ investigation into Wells Fargo's nefarious behavior centers on its wholesale banking unit, the side of the bank that deals with corporate customers.

The bank's internal review discovered widespread problems in the wholesale unit's business banking group, which focuses on companies with annual sales of $5 million to $20 million.

Back in 2015, Wells was slapped with a consent order from the Office of the Comptroller of the Currency (OCC). Because tens of thousands of documents specifically designed to thwart money-laundering activities the bank had to have on file to fulfill regulatory "know your customer" rules – including controls and processes for ensuring proper identification and monitoring client activities across a common database – were missing or "non-existent," Wells was forced to consent to fixing the problems.

When the OCC issued the consent order, Wells Fargo had more than 100,000 customer accounts it needed to verify.

The deadline to comply with the order was June 30, 2018.

In May, Wells formally asked the OCC for an extension, triggering the attention of the DOJ.

Apparently, the bank's efforts to reach thousands of clients to update addresses or dates of birth failed for reasons yet to be determined.

However, there were thousands of completed document files, which, upon internal review, the bank discovered were fraudulently updated.

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After discovering problems with altered documents initially in the wholesale unit's business banking group, Wells found similar problems in its commercial banking division (which serves middle-market companies) and its corporate trust services group (which helps with the administration of securities issued by companies and governments).

The DOJ, besides investigating the actions of employees, wants to learn if there's a pattern of unethical and potentially fraudulent behavior tied to management pressure.

(I say, probably not. I'm sure hourly and salaried back-office employees just wanted managers to get bigger bonuses while risking their jobs and jail for toasters or TGI Friday's gift cards.)

This latest investigation comes on the heels of the DOJ looking into what the U.S. Department of Labor (DOL) is examining: how Wells has been pushing participants in low-cost employer 401(k) plans to roll into more expensive individual retirement accounts (IRAs) at the bank.

Banks – and Wells isn't the only one – have programs aimed at rolling over existing 401(k) plans into IRAs using proprietary products or third-party offerings that have revenue-sharing agreements that generate big fees.

There Will Be More...

Another current investigation is centered on a tax-credit program created during the 1980s. In this program, federally funded tax credits used to help build subsidized housing are handed out to developers, who receive bids for the credits from banks and investors to offset income taxes.

Banks are the biggest buyers of the credits because they not only receive a tax write-off, but also get credit under the Community Reinvestment Act, which requires banks to invest in poorer neighborhoods where they have customers.

In 2017, Wells announced it had invested $9 billion in the program over the past five years.

The Department of Justice is looking into whether Wells Fargo colluded with developers to drive down the price of the credits over the past decade. In return, Wells Fargo would offer the developers better loan terms or agree to fund less desirable deals.

Wells is alleged to have made the price of tax credits on one deal contingent on what it would pay for tax credits in other deals. By law, each deal is supposed to be bid individually.

Those are only the three latest investigations into Wells Fargo's criminal behavior. The following excerpt only covers fines and settlements for bad behavior – most of it technically criminal behavior – recorded since 2013.

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Here's the excerpt from the Corporate Research Project, detailing the charges against Wells.

In January 2013, Wells Fargo was one of ten major lenders that agreed to pay a total of $8.5 billion to resolve claims of foreclosure abuses. A few months later, Wells Fargo settled a lawsuit alleging that it neglected the maintenance and marketing of foreclosed homes in black and Latino areas by agreeing to spend at least $42 million to promote home ownership and neighborhood stabilization.

In October 2013, Freddie Mac announced that Wells Fargo would pay $869 million to repurchase home loans the bank had sold to the mortgage agency that did not conform to the latter's guidelines.

In December 2014, FINRA fined Wells Fargo Securities $4 million as part of a case against ten investment banks for allowing their stock analysts to solicit business and offer favorable research coverage in connection with a planned initial public offering of Toys R Us in 2010.

In March 2016, the SEC charged Wells Fargo with defrauding investors in a municipal bond offering to finance 38 Studios, a Rhode Island startup video game company founded by former Boston Red Sox pitcher Curt Schilling that eventually went bankrupt, leaving the state on the hook for $75 million in debt.

In April 2016, the Justice Department announced that Wells Fargo would pay $1.2 billion to resolve allegations that the bank certified to the Department of Housing and Urban Development that certain residential home mortgage loans were eligible for Federal Housing Administration insurance when they were not, resulting in the government having to pay FHA insurance claims when some of those loans defaulted.

In August 2016, the Consumer Financial Protection Bureau announced that Wells Fargo would pay a penalty of $3.6 million plus $410,000 in restitution to customers to resolve allegations that it engaged in illegal student loan servicing practices.

In September 2016, the CFPB imposed a fine of $100 million against Wells Fargo in connection with the revelation that for years bank employees were creating more than two million new accounts not requested by customers, in order to generate illicit fees. The company also paid $35 million to the Office of the Comptroller of the Currency and $50 million to the City and County of Los Angeles.

The case generated a major scandal, and the bank's CEO John Stumpf was denounced in a Senate hearing and then one in the House. He was forced to return about $41 million in compensation, but this did not diminish the controversy. The California Treasurer announced that the state would suspend many of its business dealings with the bank; Chicago later did the same. Stumpf subsequently gave in to the pressure and resigned. The bank later clawed back an additional $75 million from Stumpf and another former executive.

In a separate case, Wells Fargo agreed to pay $50 million to settle a class action lawsuit alleging that the bank overcharged hundreds of thousands of homeowners for appraisals ordered after they defaulted on mortgage loans.

In April 2017, Wells Fargo was ordered to provide $5.4 million in back pay, damages and legal fees to a bank manager who had been terminated in 2010 after reporting suspected fraudulent behavior to superiors and a bank ethics hotline.

In July 2017, it was revealed that more than 800,000 customers who had taken out car loans with Wells Fargo were charged for auto insurance they did not need.

Several weeks later, the bank disclosed that the number of bogus accounts that had been created was actually 3.5 million, a nearly 70 percent increase over the bank's initial estimate.

In February 2018, the Federal Reserve took the unprecedented step of barring Wells Fargo from growing any larger until it cleaned up its business practices. The agency also announced that the bank had been pressured to replace four members of its board of directors.

In April 2018, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau fined Wells Fargo a total of $1 billion for selling unnecessary products to customers and other improper practices.

In May 2018, Wells Fargo agreed to pay $480 million to settle a class action lawsuit filed by shareholders accusing the company of making false statements about its business practices.

In August 2018, Wells Fargo agreed to pay $2.09 billion to resolve a Justice Department case involving the misrepresentation of the quality of loans used in residential mortgage-backed securities the bank issued in the period leading up to the financial crisis.

There will be more.

So, yes. I say that Wells Fargo is a criminal enterprise.

The bank should be put into receivership and broken up; all the banks' branches would be turned into not-for-profit "state" banks under the control of respective state legislatures and would compete with commercial banks in their respective states.

And, of course, every manager and executive who is guilty of pressuring employees to perform criminal acts should have bonuses and special compensation clawed back and go to jail. The offending employees should be fired and, if guilty of egregious behavior, go to jail, too.

What do you think?

The Corruption Doesn't End There

If there's anything that this exposure of Wells Fargo's criminal activity has shown you, it's that the corruption doesn't end. You can't be too cautious.

In fact, my friend and colleague, the Chief Investment Strategist here at Money Morning, has uncovered even more sinister activity that could affect millions of U.S. investors.

And he's predicted things like this before – in 2000, he told everyone that tech stocks were about to crash and take the entire economy down with them when they did.

And in 2007, he warned my readers that a handful of subprime mortgage companies were about to fail, bring the economy to its knees, and, in doing so, crush stocks.

Now he's saying that the greatest economic catastrophe of our generation is about to blindside 176 million U.S. investors, and the average stock traded on Wall Street will plunge by at least 50%.

That's because the activity of corrupt money managers and politicians is finally coming back to bite us – but unlike the executives at Wells Fargo, it's the little guys that will be swept away in this tsunami.

And it's all going to come to a head no later than Wednesday, Oct. 31, 2018.

But, with his help, there's a way to keep your head above water – and you can learn how to quickly amass a potential $1.5 million retirement nest egg to protect yourself.

He's compiled all his research into a presentation, and you can click here to learn more.

The clock's ticking.

The post Is Wells Fargo a Criminal Enterprise? appeared first on Wall Street Insights & Indictments.

About the Author

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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