Please ensure Javascript is enabled for purposes of website accessibility

Wells Fargo to Pay $3 Billion to Settle Fraudulent Account Scandal

By Lou Whiteman - Feb 21, 2020 at 5:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The bank will avoid criminal prosecution if it abides by the terms of the settlement.

After markets closed Friday, Wells Fargo (WFC 1.92%)  announced a significant milestone in its effort to put its troubled past behind it, agreeing to pay $3 billion and admit wrongdoing to settle criminal and civil investigations with the Department of Justice and the Securities and Exchange Commission.

The bank has been under regulatory scrutiny since 2013, when reports first surfaced that bank employees had been opening unneeded accounts for customers, ordering credit cards without customers' permission, and forging client signatures in order to meet sales quotas.

The scandal in 2016 cost Wells Fargo CEO John Stumpf his job, and his successor Tim Sloan stepped down in 2019. Wells Fargo is also operating under a Federal Reserve-imposed asset cap in place until the bank can show the Fed that it has cleaned up its act.

A banker meets with clients.

Image source: Getty Images.

In a statement announcing the settlement, current CEO Charlie Scharf called the bank's conduct in past years "reprehensible and wholly inconsistent with the values on which Wells Fargo was built." He noted that over the past three years the bank has not only overhauled management, but its board as well. And Wells Fargo has eliminated all product-based sales goals and implemented other policies to try to avoid similar issues in the future.

"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," Scharf said. "We are committing all necessary resources to ensure that nothing like this happens again, while also driving Wells Fargo forward."

As part of the agreement Wells Fargo admitted it collected improper fees and interest, harmed customer credit ratings, and unlawfully used customer information. The nation's fourth largest bank will avoid criminal prosecution as part of the agreement, but it has to continue to cooperate with investigators and comply with the terms of the agreement to avoid prosecution.

The $3 billion payment includes $500 million to be distributed by the SEC to investors.

The government can still go after individuals involved with the scandal. In January the Office of the Comptroller of the Currency, a bank regulator, said that Stumpf has been ordered to pay a $17.5 million fine and barred from working at a financial institution again.

Shares of Wells Fargo have been bogged down by the scandal and its aftermath, underperforming the S&P 500 by nearly 70 percentage points over the past five years.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$39.92 (1.92%) $0.75

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.