Wells Fargo Facing Regulatory Pressure Over Client Crimes: Report

Wells Fargo is being pressured by regulators through formal orders to enhance its system for detecting criminal activity by clients of the bank who are misusing their accounts, The Wall Street Journal reported Thursday. 

Wells has been ensnared in a spate of scandals, from Securities and Exchange Commission fines for overcharging customers and using off-channel communications, to a lawsuit accusing the bank of allowing a client to run a nearly $500 million Ponzi scheme over a five-year period.

The Federal Reserve and the Office of the Comptroller of the Currency have identified concerns requiring attention, with regulators repeatedly privately chastising the bank for not overseeing crimes committed in its consumer bank, the Journal reported, citing sources with knowledge of the matter. 

The regulators are not focusing on one specific incident, but rather on the bank’s wider oversight, the people told the Journal.

Wells Fargo and the Federal Reserve declined The Messenger’s request for comment on the report.

The Ponzi scheme lawsuit, filed in federal court in Nevada, claimed Wells Fargo “ignored obvious and continuous signs of fraud and money laundering.” After an attorney allegedly operated a scheme through an lawyers’ trust account at Wells Fargo, the lawsuit claims the bank “acted in bad faith” by failing to address several “red flags.”

While the bank is working to rebuild its oversight mechanisms following a series of legal and regulatory troubles, the unnamed sources told the Journal that regulators haven’t ruled out the possibility of a consent order or some other public penalty to address the issues. 

Wells Fargo posted strong third-quarter numbers last month, but also warned that “long standing issues” could keep it struggling to satisfy regulators.

It paid $3 billion in 2020 to settle the investigations by the Justice Department and the Securities and Exchange Commission into the creation of millions of accounts without client authorization. 

The bank admitted that from 2002 to 2016 it engaged in fraudulent behavior, from which it reaped millions of dollars in fees and interest, hurt customers’ credit ratings and misused customers’ sensitive personal information.