The Securities and Exchange Commission on Friday charged former Wells Fargo CEO John Stumpf and a top lieutenant with misleading investors about the success of the division at the heart of the bank’s fake-account scandal.
The charges against Stumpf and Carrie Tolstedt, the former head of Wells Fargo’s community bank, are the latest legal rulings in the four years since the bank admitted to creating millions of fake bank and credit card accounts.
Tolstedt embraced a metric, known as “cross-sell,” even though this measure was “inflated by accounts and services that were unused, unneeded or unauthorized,” according to the SEC.
In other words, the former Wells Fargo executive bragged to investors about how many different accounts customers had — despite the fact that millions of these accounts were fabricated by employees trying to meet wildly unrealistic sales goals set by management.
Moreover, the SEC said Tolstedt signed off on the accuracy of Wells Fargo’s public disclosures “when she knew or was reckless in not knowing” that statements about the bank’s cross-sell metric were “materially false and misleading.”
Tolstedt left Wells Fargo (WFC) at the end of 2016.
The SEC is seeking civil penalties against Tolstedt and wants to ban her from becoming an executive officer or sitting on a corporate board.
In a statement, Enu Mainigi, a lawyer at Williams & Connolly representing Tolstedt, defended her as an “honest and conscientious” executive.
“It is unfair and unfounded for the SEC to point the finger at Ms. Tolstedt when her statements were not only true but also thoroughly vetted by others as part of Wells Fargo’s policies, procedures and systems of controls,” Mainigi said. “Ms. Tolstedt acted appropriately, transparently and in good faith at all times. We look forward to setting the record straight and clearing her name.”
Stumpf, the former CEO, was accused by the SEC on Friday of signing and certifying statements in 2015 and 2016 about Wells Fargo’s cross-sell strategy and metric that he “should have known were misleading.”
Even “after being put on notice that Wells Fargo was misleading the public about the cross-sell metric,” Stumpf “failed to assure the accuracy of his certifications,” according to the SEC.
The SEC said Stumpf, “without admitting or denying the SEC’s findings,” agreed to pay a civil penalty of $2.5 million and not to commit future violations. The agency said it plans to use the money to reimburse harmed investors.
A lawyer representing Stumpf declined to comment.
Stumpf stepped down as Wells Fargo’s CEO in late 2016 during the height of the bank’s scandals. Last year, Wells Fargo hired an outsider, former Visa (V) CEO Charlie Scharf, to try to get the bank back on track after years of stumbles.
Wells Fargo declined to comment on the SEC charges. A spokesman pointed to a January message from Scharf calling the bank’s previous sales tactics “inexcusable” and calling for an effort to make sure “such failings never again occur at Wells Fargo.”
Wells Fargo has sought to penalize both Tolstedt and Stumpf by taking back a chunk of the two executives’ generous compensation packages. In 2017, the Wells Fargo board took back an additional $28 million from Stumpf because an independent report found that he was “too slow to investigate or critically challenge” the bank’s sales tactics.
At the time, Wells Fargo also clawed back another $47 million from Tolstedt, arguing she “resisted and impeded scrutiny or oversight” and even “minimized the scale and nature of the problems.”
The SEC charges against Tolstedt and Stumpf come after the agency charged the bank in February with misleading investors about the fake-accounts scandal.
Wells Fargo agreed to pay $3 billion in fines to settle investigations with the SEC and the Justice Department.
In January, Stumpf agreed to a lifetime ban from the banking industry and a $17.5 million fine for his role in the fake-accounts scandal and other misconduct.
