Close
ThinkAdvisor

Practice Management > Building Your Business

SEC Hits Ex-Wells Fargo CEO Stumpf With $2.5M Fine

X
Your article was successfully shared with the contacts you provided.

The Securities and Exchange Commission on Friday charged former Wells Fargo & Co. CEO and Chairman John Stumpf and former head of Wells Fargo’s Community Bank Carrie Tolstedt for their roles in allegedly misleading investors about the success of the Community Bank, Wells Fargo’s core business.

The SEC’s filings include settled charges against Stumpf, who agreed to pay a $2.5 million penalty, and a litigated action alleging Tolstedt committed fraud.

The SEC previously filed settled charges against Wells Fargo for engaging in the misconduct.

According to the SEC’s complaint against Tolstedt, from mid-2014 through mid-2016, Tolstedt publicly described and endorsed Wells Fargo’s “cross-sell metric” as a means of measuring the firm’s financial success despite the fact that this metric was inflated by accounts and services that were unused, unneeded or unauthorized.

The complaint further alleges that Tolstedt signed misleading sub-certifications as to the accuracy of Wells Fargo’s public disclosures when she knew or was reckless in not knowing that statements in those disclosures regarding Wells Fargo’s cross-sell metric were materially false and misleading.

The SEC’s order against Stumpf finds that in 2015 and 2016 he signed and certified statements filed with the commission, which he should have known were misleading, regarding both Wells Fargo’s Community Bank cross-sell strategy and its reported metric.

Wells Fargo said Friday: “We have commented on these historical issues in the past and have nothing to add.”

“Over the past three years, the company has made fundamental changes to its business model, compensation programs, leadership, and governance …,” CEO Charlie Scharf explained in January. “The company is different today, but we know we still have significant work to do to regain the trust of all stakeholders.”

In September 2016, Wells Fargo forced Stumpf to forfeit $41 million of stock, plus some salary. Tolstedt gave up unvested stock valued at about $19 million and agreed not to cash in outstanding options. Neither received a bonus for 2016.

Other Issues

A month ago, Wells Fargo said it was bringing together different parts of its Wealth and Investment Management unit and reportedly was exploring the sale of its Asset Management business. The bank also is reportedly considering the sale of its private-label credit card unit.

In mid-October, the bank said several hundred financial advisors have been included in recent layoffs, which started in August, and two weeks after rival wirehouse Morgan Stanley said it was buying asset manager Eaton Vance. 

Wells Fargo’s asset management business — part of the wealth unit — could be sold for over $3 billion, according to sources who spoke with Reuters. The business managed $607 billion as of Sept. 30, $307 billion of which were in Wells Fargo funds.  

In its third-quarter financial report, Wells Fargo said it ended the period with 12,908 financial advisors, down 815, or 6%, from a year ago and 391, or 3%, from the prior quarter. 

The bank’s Wealth & Investment Management unit had a 64% drop in net income from last year to $463 million. Its total asset level was flat at $1.9 trillion. 

The bank overall had a 56% year-over-year slump in profits to $2.04 billion. Earnings per share sank 55% to $0.42. 

As it moves to improve results, Wells Fargo is planning job cuts that may trim up to 20% to 25% of its workforce — representing about 50,000 to 66,000 positions, according to a report in early September in Pensions & Investments.

At the same time, other issues have been cropping up.  Two U.S. senators grilled Wells Fargo CEO Charles Scharf this summer about the bank’s “pausing” of mortgage payments without borrowers’ consent as part of a program tied to fallout from the coronavirus.

Sens Elizabeth Warren (D-Mass.) and Brian Schatz (D-Hi.), sent Scharf a letter, about two weeks after NBC reported dozens of such actions by Wells Fargo. 

-– Related on ThinkAdvisor: