Close Close

Regulation and Compliance > State Regulation

Wells Fargo Probed for Criminal Identity Theft in California

Your article was successfully shared with the contacts you provided.

California prosecutors are investigating whether Wells Fargo & Co. (WFC) bankers committed criminal identity theft by creating millions of fraudulent accounts.

Attorney General Kamala Harris served a search warrant on the bank seeking the names of employees who opened unauthorized accounts from May 2011 to July 2015. The warrant, provided by Harris, also demands detailed communications, the bank’s fee structure and a calculation of losses suffered by affected customers.

Harris’s office said a probe by Los Angeles officials revealed state penal code violations for impersonation and unauthorized use of personal information for checking and savings accounts and also for lines of credit, credit cards, mortgages and wealth management accounts, according to a filing attached to the Oct. 5 search warrant.

“We are cooperating in providing the requested information,” Mark Folk, a bank spokesman, said Wednesday in an e-mailed statement. Kristin Ford, a spokeswoman for Harris, declined to comment on the warrant.

The investigation by Harris, a Democrat running for the U.S. Senate, adds to the mountain of scrutiny facing Wells Fargo, which on Sept. 8 agreed to pay $185 million to settle claims that employees may have opened more than 2 million bogus customer accounts to boost sales tallies. Congressional hearings followed and Chief Executive Officer John Stumpf stepped down last week. The San Francisco-based bank faces at least a dozen lawsuits by customers, investors and former employees.

Federal prosecutors in New York and San Francisco also have opened criminal probes of the bank, a person familiar with the matter has said. Under Justice Department guidelines, investigators will be looking into both potential corporate and individual wrongdoing, the person said.

Unusual Probe

It’s unusual for companies of Wells Fargo’s stature and size to be investigated for criminal identity theft, though typical that the search warrants target bank records, said William Portanova, a former federal prosecutor.

“Using someone else’s identity to open a bank account is a crime, period,” Portanova said. “It’s a violation of the California penal code. It is punishable by jail. It can be a misdemeanor or felony.”

He added, “It’s a good sign for the future of white-collar investigations, because frankly a lot of large scale organizations have been not only too big to fail but apparently been too big to be investigated.”

The state’s identity theft claims further the notion that Wells Fargo employees knowingly defrauded customers. In the affidavit requesting the search warrant, James Hirt, a special agent supervisor for California’s Justice Department, cites interviews with four customers claiming Wells Fargo “unlawfully accessed the bank’s computer system to obtain” their personal information.

Bounced Checks

One customer didn’t know a $10,000 line of credit was opened in his name, and another bounced checks and incurred fees because the bank made her re-open her accounts half a dozen times over four years, according to Hirt’s affidavit. A third noticed monthly transfers of $50 to $150 from her checking account to an unauthorized savings account, even as Wells Fargo allegedly refused to provide bank statements.

Bankers used the customers’ personal information without authorization, including a mother’s maiden name and children’s names, Hirt said. Bank employees then used the unlawfully obtained information “to commit false impersonation and identity theft in opening unauthorized accounts, credit cards, and various other products that resulted in the accumulation of fees and charges for Wells Fargo,” according to the affidavit.

Wells Fargo has said it’s fired 5,300 employees linked to the scandal. The highest-ranking official fired by the bank was an area manager, Stumpf told the Senate finance committee before he resigned. The company’s retail-banking chief, Carrie Tolstedt, left before the regulatory settlement was made public.

Bankers targeted vulnerable clients to bolster their quotas, including Spanish-speaking immigrants, Bloomberg reported. Those included Mexican nationals with consular ID cards that made adding services easier. A Wells Fargo spokeswoman said the firm had “no indication that consular card customers were disparately impacted.”

Sloan’s Debut

Tim Sloan, who replaced Stumpf, left analysts unsatisfied in his debut as CEO last week, citing investigations by the board as he deferred most of their questions about the abuses. The bank has apologized for breaking customers trust, vowed to make them whole and said it’s ending sales incentives that have been blamed for the abuses. Stumpf and Tolstedt are forgoing more than $60 million of unvested stock.

Wells Fargo’s credit-rating outlook this week was revised by S&P Global Ratings to negative from stable on concerns that fallout from the scandal is spreading beyond the consumer division. The credit grader, which left the rating at A/A-1 for now, said additional investigations could reveal more wrongdoing and the bank’s reputation will likely be further undermined if more fines are levied against it.

Damage from the scandal has already spread beyond the bank’s consumer division to its business with state and local governments. Massachusetts is the latest municipal debt issuer to bar the bank from selling its bonds. Wells Fargo’s home state of California, which is among the biggest municipal debt issuers, plus Ohio and Illinois had earlier announced similar actions to punish the company. Cities including Chicago and Seattle have also severed some ties.