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.
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.
He helped develop what has become known as the Volatility Index (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.
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