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Wells Fargo Settles With Feds, Will Pay $3B in Fake-Accounts Scandal

Wells Fargo has agreed to pay $3 billion to resolve criminal and civil claims involving excessive and unrealistic sales goals that led employees to falsify records and create fake customer accounts to meet them.

(CN) – Wells Fargo has agreed to pay $3 billion to resolve criminal and civil claims involving excessive and unrealistic sales goals that led employees to falsify records and create fake customer accounts to meet them.

The U.S. Department of Justice, which announced the settlement Friday, said the deal resolves three disputes over Wells Fargo’s 14-year practice of encouraging employees to meet sales goals that led the bank to collect millions in improper fees and interest.

Wells Fargo acknowledges that for over a decade, its employees engaged in “gaming” practices in which they used existing customer data to engage in a number of fraudulent activities, such as opening new accounts and lines of credit without customer consent. The bank employees moved large sums of money to unauthorized accounts, created fake pin numbers and even forged customer signatures in the scheme, according to a statement of facts accompanying a deferred prosecution agreement.

Bank executives knew about the practices as early as 2002 but allowed them to continue, according to the statement.

Michael D. Granston, deputy assistant attorney general with the Justice Department’s Civil Division, said the settlement should remind companies of the consequences of dishonesty and reaffirm the government’s commitment to ensuring the American people are protected from fraud.

“When companies cheat to compete, they harm customers and other competitors,” Granston said in a statement. “This settlement holds Wells Fargo accountable for tolerating fraudulent conduct that is remarkable both for its duration and scope, and for its blatant disregard of customers’ private information. The Civil Division will continue to use all available tools to protect the American public from fraud and abuse, including misconduct by or against their financial institutions.”

In addition to settling with the Justice Department, Wells Fargo agreed to a civil settlement under the Financial Institutions Reform, Recovery and Enforcement Act involving the faked bank records and settled its case with the U.S. Securities and Exchange Commission. Wells Fargo will pay the SEC a $500 million civil penalty that will then be divided among investors.

Andrew Murray, the U.S. Attorney for the Western District of North Carolina, said the size of the settlement was completely justified given the extent of Wells Fargo’s actions.

“Our settlement with Wells Fargo, and the $3 billion monetary penalty imposed on the bank, go far beyond ‘the cost of doing business’,” Murray said in a statement. “They are appropriate given the staggering size, scope and duration of Wells Fargo’s illicit conduct, which spanned well over a decade. When a reputable institution like Wells Fargo caves to the pernicious forces of greed and puts its own interests ahead of those of the customers it claims to serve, my office will not sit idle.

"Today’s announcement should serve as a stark reminder that no institution is too big, too powerful, or too well known to be held accountable and face enforcement action for its wrongdoings.”

The deferred prosecution agreement will remain in effect for three years provided the bank follows the guidelines of the settlement and continues to cooperate with ongoing investigations.

Wells Fargo CEO Charlie Scharf said the bank has made efforts to restructure itself in the three years since the scheme was uncovered and is committed rebuilding trust with its customers.

“The conduct at the core of today’s settlements — and the past culture that gave rise to it — are reprehensible and wholly inconsistent with the values on which Wells Fargo was built,” Scharf said in a statement. “Our customers, shareholders and employees deserved more from the leadership of this company. Over the past three years, we’ve made fundamental changes to our business model, compensation programs, leadership and governance.

“While today’s announcement is a significant step in bringing this chapter to a close, there’s still more work we must do to rebuild the trust we lost. We are committing all necessary resources to ensure that nothing like this happens again, while also driving Wells Fargo forward.”

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Categories / Consumers, Criminal, Financial, Securities

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