The Securities and Exchange Commission has brought charges against two former Wells Fargo executives, alleging that they misled investors about measures of the firm’s financial success.
The regulator said Friday that it had settled its charges with former chief executive officer and chairman John Stumpf, who will pay a $2.5 million fine for his involvement in the matter.
Meanwhile, the SEC has filed a complaint in federal court against Carrie Tolstedt, former head of the firm’s community bank division.
The SEC’s actions follow earlier charges levied in February against Wells Fargo. The SEC alleged then that the firm had misled investors about a sales strategy it used as a metric of success. At the time, Wells Fargo paid a $500 million fine to the regulator. The firm did not respond to an email seeking comment on the latest news.
Although similar in substance, the charges brought Friday center around the time between mid-2014 and mid-2016, during which Tolstedt allegedly endorsed Wells Fargo’s cross-selling strategy, which involved selling additional products to existing retail customers.
The metric was highlighted in Wells Fargo’s earnings reports as “key” to the firm’s ability to grow revenue and earnings, according to the complaint against Tolstedt. However, the complaint alleges that the cross-selling measure was inflated, as bankers were incentivized to unnecessarily open accounts for customers.
During this period, Tolstedt allegedly signed “misleading sub-certifications” that said the bank’s public disclosures were correct.
Stumpf, meanwhile, was found to have signed and certified statements on the cross-selling strategy that he “should have known were misleading,” according to the SEC.
“If executives speak about a key performance metric to promote their business, they must do so fully and accurately,” Stephanie Avakian, director of the SEC’s Division of Enforcement, said in a statement.
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The SEC’s complaint alleges that Tolstedt violated antifraud provisions of federal securities laws. The suit is seeking a permanent injunction against Tolstedt, as well as civil penalties, disgorgement with pre-judgment interest, and an officer-director bar.
Stumpf, meanwhile, did not admit to or deny the SEC’s claims, the order said. He agreed to a cease and desist from committing or causing future violations of the Securities Act of 1933 and paid a civil penalty of $2.5 million. That money will be combined with the $500 million paid by Wells Fargo in the previous settlement and distributed to harmed investors, the SEC said.
In January, Stumpf agreed to pay the Office of the Comptroller of the Currency $17.5 million in relation to this issue. Tolstedt, meanwhile, was charged by the agency. It’s unclear what the status of those charges is.
Tolstedt and Stumpf both retired from Wells Fargo in 2016, according to announcements made by the bank at the time.
In connection to the cross-selling strategy snafu, “tens of thousands” of Wells Fargo employees were alleged to have engaged in unethical sales practices between 2011 and 2016, according to the SEC complaint against Tolstedt.
It said that more than 5,300 employees were terminated for sales ethics violations, which included falsifying bank records, and that more than 23,000 employees were referred for sales practice investigations. Thousands, according to the complaint, received disciplinary action.
