Wells Fargo-SEC settlement on advisory costs highlights M&A difficulties

Wells Fargo overcharged almost 11,000 accounts about $26.8 million in advisory costs from 2002 to 2022, the SEC stated. The issue was stated to have actually started at Wachovia prior to Wells Fargo purchased it in 2008 and was not captured up until a years after the acquisition.

Cooper Neill/Bloomberg

Wells Fargo is paying a $35 million fine and almost $40 million in restitution to settle Securities and Exchange Commission accusations that its financial investment suggestions arm overcharged consumers for many years. 

The business overcharged almost 11,000 accounts about $26.8 million in advisory costs for many years, the SEC stated in a press release Friday. The overcharging happened from 2002 to 2022 and is partially gotten in touch with its crisis-era acquisition of Wachovia Corp., according to an SEC order detailing the settlement.

Wachovia and AG Edwards, a financial investment company that Wachovia had actually gotten right before the crisis, offered particular consumers discount rates to their basic advisory costs — yet they in some cases stopped working to go into the discount rates into Wachovia billing systems.

Wells Fargo did not capture the inconsistencies for many years after the acquisition, the SEC stated, and its consultants continued to use discount rates that weren’t shown in consumer billing. The business found out about the concern in 2018 after Connecticut banking regulators inquired about it, triggering an evaluation at Wells Fargo that discovered almost 11,000 accounts across the country were overcharged.

“Today’s enforcement action underscores the need for firms growing their businesses through acquisition to ensure that their growth does not come at the expense of client protection,” Gurbir S. Grewal, director of the SEC’s enforcement department, stated in the release.

The Wachovia acquisition was far from perfect. It belonged to the shotgun marital relationships of banks throughout 2008, as distressed home loan portfolios at Wachovia and somewhere else assisted bring the worldwide monetary system to its knees.

But the offer assisted enormously extend Wells Fargo’s reach and brought Wachovia’s extensive consultant network to the San Francisco bank. 

Wells Fargo didn’t have much time to do due diligence on the offer throughout 2008, kept in mind John Gebauer, primary regulative officer at the danger advisory company Comply. “But they had plenty of time after that transaction to run a smooth integration and to review what they bought,” Gebauer stated. 

The order highlights the value of performing comprehensive compliance examine billing and other concerns as the consultant market continues going through a wave of combination, Gebauer included.

The procedure that consultants at Wells Fargo and its gotten companies utilized to use discount rates on pre-programmed costs for particular customers dropped in 2014. But some consumers who opened accounts prior to 2014 continued to be overcharged up until last December, the SEC stated.

In a declaration, the business — which did not confess or reject the SEC charges — stated it was pleased to solve the concern.

“The process that caused this issue was corrected nearly a decade ago,” the business stated. “And, as noted in the settlement documents, Wells Fargo Advisors conducted a thorough review of accounts and has fully reimbursed affected customers.”

Wells Fargo has actually repaid impacted consumers more than $26 million from the costs it overcharged and $13 million in interest, the SEC stated.

The order stated that personnel needed to by hand input agreed-upon discount rates to a brand-new consumer account setup tool, which “did not automatically populate” those one-off discount rates. That was then moved to a tradition Wachovia billing system that the order stated is still in usage today.

While Wells Fargo consultants might evaluate the completed details for inconsistencies, the business “did not have policies or procedures” that needed them to evaluate and verify the precision of charges, the SEC order stated. 

The business did have a quality assurance procedure in location from 2009 to 2014 focused on flagging inconsistencies — however it was just for accounts with more than $250,000 when they were opened, the SEC order stated.

The quality assurance procedure infect smaller sized accounts beginning in 2014, however the business did refrain from doing a historic lookback to analyze previous inconsistencies, the SEC stated.

In Connecticut, where banking regulators initially flagged the concern, Wells Fargo discovered that it overcharged 145 out of more than 57,000 accounts. Most of those gone back to the AG Edwards and Wachovia days.

Last year, Wells Fargo started utilizing a tech-enabled procedure to recognize mistakes for approximately 2.2 million accounts throughout the nation. In all, the bank discovered it overcharged 10,800 other accounts.

The fine is among a variety of charges the $1.9 trillion-asset business has actually paid over the last few years, some much bigger ones connected to consumer-abuse scandals. 

Last December, the Consumer Financial Protection Bureau fined Wells Fargo $1.7 billion for imperfections in automobile loan, home loan and deposit items. The business likewise accepted pay $1 billion to investors in May to settle claims that its previous leaders were extremely positive on how rapidly it would fix its impressive concerns with regulators.

CEO Charlie Scharf, who signed up with the business in late 2019, has actually stated revamping the business’s danger and control structure stays Wells Fargo’s “top priority and will remain so.” 

Dan Shaw added to this short article.


A news media journalist always on the go, I've been published in major publications including VICE, The Atlantic, and TIME.

Related Articles

Back to top button