Wells Fargo Agrees to Pay $3 Billion to Resolve Criminal and Civil Investigations into Sales Practices Involving the Opening of Millions of Accounts without Customer Authorization
Wells Fargo Agrees to Pay $3 Billion to Resolve Criminal and Civil Investigations into Sales Practices Involving the Opening of Millions of Accounts without Customer Authorization
Department of Justice
United States of America
Wells Fargo Bank
he deferred prosecution agreement was handled by:
Andrew Murray, U.S. attorney for the Western District of North Carolina.
Nick Hanna, U.S. attorney for the Central District of California
the United States Attorney’s Offices in Los Angeles and Charlotte, with investigative support from
the Federal Bureau of Investigation,
the Federal Deposit Insurance Corporation - Office of Inspector General,
the Federal Housing Finance Agency - Office of Inspector General,
the Office of Inspector General for the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau, and
the United States Postal Inspection Service.
David J. Rice Christopher M. Viapiano
Assistant General Counsel Sullivan & Cromwell LLP
Legal Department 1700 New York Avenue, N.W.
Wells Fargo & Company Suite 700
One Wells Fargo Center Washington D.C., 20006
301 South College Street, 30th Floor email@example.com
Charlotte, NC 28202-6000
Department of Justice
Office of Public Affairs
FOR IMMEDIATE RELEASE
Friday, February 21, 2020
Wells Fargo Agrees to Pay $3 Billion to Resolve Criminal and Civil Investigations into Sales Practices Involving the Opening of Millions of Accounts without Customer Authorization
$3 Billion Payment Result of Deferred Prosecution Agreement in Criminal Matter, Settlement of Civil Claims under FIRREA and Resolution of SEC Proceedings
Wells Fargo & Company and its subsidiary, Wells Fargo Bank, N.A., have agreed to pay $3 billion to resolve their potential criminal and civil liability stemming from a practice between 2002 and 2016 of pressuring employees to meet unrealistic sales goals that led thousands of employees to provide millions of accounts or products to customers under false pretenses or without consent, often by creating false records or misusing customers’ identities, the Department of Justice announced today.
As part of the agreements with the United States Attorney’s Offices for the Central District of California and the Western District of North Carolina, the Commercial Litigation Branch of the Civil Division, and the Securities and Exchange Commission, Wells Fargo admitted that it collected millions of dollars in fees and interest to which the Company was not entitled, harmed the credit ratings of certain customers, and unlawfully misused customers’ sensitive personal information, including customers’ means of identification.
“When companies cheat to compete, they harm customers and other competitors,” said Deputy Assistant Attorney General Michael D. Granston of the Department of Justice’s Civil Division. “This settlement holds Wells Fargo accountable for tolerating fraudulent conduct that is remarkable both for its duration and scope, and for its blatant disregard of customer’s private information. The Civil Division will continue to use all available tools to protect the American public from fraud and abuse, including misconduct by or against their financial institutions.”
“Our settlement with Wells Fargo, and the $3 billion monetary penalty imposed on the bank, go far beyond ‘the cost of doing business.’ They are appropriate given the staggering size, scope and duration of Wells Fargo’s illicit conduct, which spanned well over a decade,” said U.S. Attorney Andrew Murray for the Western District of North Carolina. “When a reputable institution like Wells Fargo caves to the pernicious forces of greed, and puts its own interests ahead of those of the customers it claims to serve, my office will not sit idle. Today’s announcement should serve as a stark reminder that no institution is too big, too powerful, or too well-known to be held accountable and face enforcement action for its wrongdoings.”
“This case illustrates a complete failure of leadership at multiple levels within the Bank. Simply put, Wells Fargo traded its hard-earned reputation for short-term profits, and harmed untold numbers of customers along the way,” said U.S. Attorney Nick Hanna for the Central District of California. “We are hopeful that this $3 billion penalty, along with the personnel and structural changes at the Bank, will ensure that such conduct will not reoccur.”
“Our office is committed to bringing to justice those who deliberately falsify and fabricate bank records in order to deceive regulators and the public,” said Inspector General Mark Bialek of the Board of Governors of the Federal Reserve System and Bureau of Consumer Financial Protection. “I commend our agent and our law enforcement partners for their hard work and persistence that led to today’s announcement.”
“Today’s multi-billion-dollar penalty holds Wells Fargo accountable for its unlawful sales practices and pressure tactics in which it deceived millions of clients, thus causing substantial hardship for the very individuals who placed their trust in the institution,” said Inspector General Jay N. Lerner Federal Deposit Insurance Corporation. “The FDIC Office of Inspector General is committed to working with our law enforcement partners in order to investigate such financial crimes that harm customers and investors, and undermine the integrity of the banking sector.”
The criminal investigation into false bank records and identity theft is being resolved with a deferred prosecution agreement in which Wells Fargo will not be prosecuted during the three-year term of the agreement if it abides by certain conditions, including continuing to cooperate with further government investigations. Wells Fargo also entered a civil settlement agreement under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) based on Wells Fargo’s creation of false bank records. FIRREA authorizes the federal government to seek civil penalties against financial institutions that violate various predicate criminal offenses, including false bank records. Wells Fargo also agreed to the SEC instituting a cease-and-desist proceeding finding violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The $3 billion payment resolves all three matters, and includes a $500 million civil penalty to be distributed by the SEC to investors.
The 16-page statement of facts accompanying the deferred prosecution agreement and civil settlement agreement outlines a course of conduct over 15 years at Well Fargo’s Community Bank, which was then the largest operating segment of Wells Fargo, consistently generating more than half of the company’s revenue. The statement of facts outlines top Community Bank leaders’ knowledge of the conduct. As part of the statement of facts, Wells Fargo admitted the following:
Beginning in 1998, Wells Fargo increased its focus on sales volume and reliance on annual sales growth. A core part of this sales model was the “cross-sell strategy” to sell existing customers additional financial products. It was “the foundation of our business model,” according to Wells Fargo. In its 2012 Vision and Values statement, Wells Fargo stated: “We start with what the customer needs – not with what we want to sell them.”
But, in contrast to Wells Fargo’s public statements and disclosures about needs-based selling, the Community Bank implemented a volume-based sales model in which employees were directed and pressured to sell large volumes of products to existing customers, often with little regard to actual customer need or expected use. The Community Bank’s onerous sales goals and accompanying management pressure led thousands of its employees to engage in unlawful conduct – including fraud, identity theft and the falsification of bank records – and unethical practices to sell product of no or little value to the customer.
Many of these practices were referred to within Wells Fargo as “gaming.” Gaming strategies varied widely, but included using existing customers’ identities – without their consent – to open checking and savings, debit card, credit card, bill pay and global remittance accounts. From 2002 to 2016, gaming practices included forging customer signatures to open accounts without authorization, creating PINs to activate unauthorized debit cards, moving money from millions of customer accounts to unauthorized accounts in a practice known internally as “simulated funding,” opening credit cards and bill pay products without authorization, altering customers’ true contact information to prevent customers from learning of unauthorized accounts and prevent Wells Fargo employees from reaching customers to conduct customer satisfaction surveys, and encouraging customers to open accounts they neither wanted or needed.
The top managers of the Community Bank were aware of the unlawful and unethical gaming practices as early as 2002, and they knew that the conduct was increasing due to onerous sales goals and pressure from management to meet these goals. One internal investigator in 2004 called the problem a “growing plague.” The following year, another internal investigator said the problem was “spiraling out of control.” Even after senior managers in the Community Bank directly called into question the implementation of the cross-sell strategy, Community Bank senior leadership refused to alter the sales model, which contained unrealistic sales goals and a focus on low-quality secondary accounts.
Despite knowledge of the illegal sales practices, Community Bank senior leadership failed to take sufficient action to prevent and reduce the incidence of such practices. Senior leadership of the Community Bank minimized the problems to Wells Fargo management and its board of directors, by casting the problem as driven by individual misconduct instead of the sales model itself. Community Bank senior leadership viewed negative sales quality and integrity as a necessary byproduct of the increased sales and as merely the cost of doing business.
* * *
The government’s decision to enter into the deferred prosecution agreement and civil settlement took into account a number of factors, including Wells Fargo’s extensive cooperation and substantial assistance with the government’s investigations; Wells Fargo’s admission of wrongdoing; its continued cooperation in the investigations; its prior settlements in a series of regulatory and civil actions; and remedial actions, including significant changes in Wells Fargo’s management and its board of directors, an enhanced compliance program, and significant work to identify and compensate customers who may have been victims. The deferred prosecution agreement will be in effect for three years.
The global settlement also reflects coordination between the Department of Justice and the SEC to ensure a resolution that appropriately addresses the severity of the defendants’ conduct while avoiding the imposition of fines and penalties that are unnecessarily duplicative.
The deferred prosecution agreement was handled by the United States Attorney’s Offices in Los Angeles and Charlotte, with investigative support from the Federal Bureau of Investigation, the Federal Deposit Insurance Corporation - Office of Inspector General, the Federal Housing Finance Agency - Office of Inspector General, the Office of Inspector General for the Board of Governors of the Federal Reserve System and Consumer Financial Protection Bureau, and the United States Postal Inspection Service.
The civil settlement agreement was the result of a coordinated effort between the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office in Los Angeles.
EXHIBIT A—STATEMENT OF FACTS
Wells Fargo Bank, N.A. (“WFB”) and Wells Fargo & Company (“WFC”) (collectively
referred to hereinafter as “Wells Fargo” or “the Company”) admit, accept, and acknowledge as
true the following facts:
Background on Wells Fargo and the Community Bank
At all relevant times, except when specific times are described below:
1. WFC was a publicly traded financial services corporation headquartered in San
Francisco, California, and organized under the laws of the State of Delaware. WFC’s common
stock was registered under Section 12(b) of the Exchange Act and quoted on the New York
Stock Exchange (Ticker: WFC).
2. WFC owned various subsidiaries through which it operated various lines of
businesses, including the wholly owned subsidiary WFB. WFB was a national bank and financial
institution under 31 U.S.C. § 5312, and its customers’ deposits were insured by the Federal
Deposit Insurance Corporation.
3. WFC provided retail, commercial, and corporate banking services through three
operating segments for management reporting purposes: the Community Bank, Wholesale
Banking, and Wealth and Investment Management. WFC offered, through WFB and its other
subsidiaries, a diverse array of financial services and products to both individuals and businesses.
4. Wells Fargo’s largest business unit was the Community Bank, which contributed
more than half (and in some years more than two-thirds) of the Company’s revenue from 2007
through 2016. The Community Bank was responsible for managing many of the everyday
banking products targeted to individuals and small businesses, including checking and savings
accounts, certificates of deposit, debit cards, bill pay, and global remittance products. The
Community Bank also made referrals to other units in WFC regarding mortgages, lines of credit,
credit cards, investment products (including brokerage products), insurance products, safe
deposit boxes and a variety of other banking products. All of the accounts, products, and services
referred to in this paragraph are hereinafter referred to collectively as “accounts and financial
products.” Product groups within the Community Bank designed and managed some of these
accounts and financial products, and others were designed and managed by other parts of the
5. Accounts and financial products throughout Wells Fargo were offered to
consumers within a large network of branches, referred to within Wells Fargo as “stores,” as well
as other channels. Employees and officers of the Community Bank referred to accounts and
financial products as “solutions” to be “sold” to customers. The Community Bank managed the
U.S. branches. The branches employed various types of employees, including tellers, who
processed basic transactions and made referrals to bankers for account openings or complex
transactions, and bankers, who were generally responsible for offering accounts and financial
products to customers. Branch managers reported to other managers, and all ultimately reported
up to senior regional executives, called Regional Bank Executives (“RBEs”). The RBEs
generally reported directly to the head of the Community Bank.
6. From 2007 to 2016, Executive A was the senior executive vice president in charge
of the Community Bank. In that position, Executive A reported directly to the CEO of Wells
Fargo. From 2002 to 2007, Executive A was head of regional banking, which included the retail
segment, small business, and business banking.
The Cross-Sell Model
7. Beginning in 1998, Wells Fargo increased its focus on sales volume and reliance
on year-over-year sales growth. A core part of this sales model was the “cross-sell strategy.” As
described externally, the cross-sell strategy called for Wells Fargo to meet all of its customers’
financial needs by focusing on selling to its existing customers additional financial products that
those customers wanted, needed, and would use. Wells Fargo represented to investors that its
ability to execute successfully on its cross-selling strategy provided the Company with a
competitive advantage, caused an increase in revenue, and allowed it to better serve its
8. Wells Fargo characterized its cross-selling strategy to investors as a key
component of its financial success and routinely discussed its efforts to achieve cross-sell
growth. Wells Fargo described cross-selling as its “primary strategy” to achieve its “vision . . . to
increase the number of our products our customers utilize and to offer them all of the financial
products that fulfill their needs.” Wells Fargo stated that cross-selling was the “cornerstone of
[its] business model and key to [its] ability to grow revenue and earnings.” It was “the
foundation of our business model.”
9. Wells Fargo publicly stated on numerous occasions that its sales strategy was
“needs-based.” In other words, Wells Fargo claimed that its strategy was to sell customers the
accounts that they needed. In its 2012 Vision and Values statement Wells Fargo stated: “We do
not view any product in isolation, but as part of a full and long-lasting relationship with a
customer and with that customer’s total financial needs. We start with what the customer
needs—not with what we want to sell them.” Its subsequent Vision and Values statement,
published in 2015, contained similar language. In its 2015 Annual Report, Wells Fargo stated
that “[o]ur approach to cross-sell is needs-based as some customers will benefit from more
products, and some may need fewer.” The Company’s 2012 through 2016 Annual Reports
explicitly referred to these Vision & Values statements.
10. At Wells Fargo’s May 2010 Investor Day conference, Executive A stated that
“Our cross-sell focus starts with customer needs.” Similarly, during a March 2016 meeting with
an analyst, Executive A stated that Wells Fargo “only cross sell[s] products which customers
value and will use.” At Wells Fargo’s 2016 Investor Day conference, Executive A stated: “[A]s
we think about products per household or cross-sell, the first thing we anchor ourselves on is our
vision of satisfying our customers’ needs.”
The Cross-Sell Metric
11. From at least 2000 until the third quarter of 2016, Wells Fargo published a
Community Bank “cross-sell metric” in its Annual Reports and SEC Forms 10-Q, 10-K, and 8-K
that purported to be the ratio of the number of accounts and products per retail bank household.
During investor presentations and analyst conferences, Well Fargo referred to the Community
Bank’s cross-sell metric, which continued to increase over time until it flattened in Q2 2014 and
then decreased in Q3 2014, as proof of its success at executing on this core business strategy.
Wells Fargo touted to investors the consistent growth of the cross-sell metric over time as
demonstrative of its success at executing on its cross-selling strategy.
12. Because of the centrality of the cross-sell metric to Wells Fargo’s investor
narrative, Company executives, including Executive A, were focused on maintaining cross-sell
growth from at least 2007 through 2016. The compensation of certain Company executives,
including Executive A, was impacted by cross-sell growth.
Implementation of Cross-Sell at the Community Bank
13. In contrast to the Company’s public statements and disclosures about needs-based
selling, Executive A implemented a volume-based sales model in which employees were
directed, pressured, and/or caused to sell large volumes of products to existing customers, often
with little regard to actual customer need or expected use. From at least as early as 2002 to
approximately 2013, Community Bank leadership, including Executive A, directly and/or
indirectly encouraged, caused, and approved sales plans that called for aggressive annual growth
in a number of basic banking products, such as checking and savings accounts, debit cards, credit
cards, and bill pay accounts.
14. By approximately 2010, in light of existing product penetration, shifting demand,
macroeconomic conditions, and regulatory developments that made certain products—such as
checking accounts—less profitable, the sales plans were regarded in various parts of the
Community Bank as far too high to be met by selling products that customers actually wanted,
needed, or would use. Nevertheless, the number of products sold continued to be a significant
criterion by which the performance of employees, ranging from tellers and bankers to RBEs, was
evaluated. Throughout the Community Bank, managers responded to the increasing difficulty of
growing sales by exerting extreme pressure on subordinates to achieve sales goals, including
explicitly directing and/or implicitly encouraging employees to engage in various forms of
unlawful and unethical conduct to meet increasing sales goals. Many employees believed that a
failure to meet their sales goal would result in poor job evaluations, disciplinary action, and/or
termination. Though there had been evidence of employees struggling to ethically meet sales
goals as early as 2002, the problem became significantly more acute beginning in 2010 as the
sales plans diverged further from market opportunity and managers responded by increasing
pressure on employees to sell products that customers did not want or need and would not use.
Unlawful and Unethical Misconduct by the Community Bank to Generate Sales
15. The Community Bank’s onerous sales goals and accompanying management
pressure led thousands of its employees to engage in: (1) unlawful conduct to attain sales through
fraud, identity theft, and the falsification of bank records, and (2) unethical practices to sell
products of no or low value to the customer, while believing that the customer did not actually
need the account and was not going to use the account.
16. Collectively, many of these practices were referred to within Wells Fargo as
“gaming.” “Gaming” was a term generally known at the Company and referred to employees’
manipulation and/or misrepresentation of sales to meet sales goals, receive incentive
compensation and/or avoid negative consequences, such as reprimands or termination. Gaming
strategies varied widely, and included using existing customers’ identities—without the
customers’ consent—to open checking and savings, debit card, credit card, bill pay, and global
remittance accounts. Many widespread forms of gaming constituted violations of federal
criminal law. The following are examples of gaming practices engaged in by Wells Fargo
employees during the period from 2002 to 2016:
a. Employees created false records and forged customers’ signatures on
account opening documents to open accounts that were not authorized by customers.
b. After opening debit cards using customers’ personal information without
consent, employees falsely created a personal identification number (“PIN”) to activate
the unauthorized debit card. Employees often did so because the Community Bank
rewarded them for opening online banking profiles, which required a debit card PIN to be
c. In a practice known as “simulated funding,” employees created false
records by opening unauthorized checking and savings accounts to hit sales goals. They
then transferred funds to the unauthorized account to meet the funding criteria required to
receive credit for “selling” the new account. To achieve this “simulated funding,”
employees often moved funds from existing accounts of the customers without their
consent. Millions of accounts reflected transfers of funds between two accounts that were
equal in amount to the product-specific minimum amount for opening the later account
and that thereafter had no further activity on the later account; many of these accounts
were subject to simulated funding. In many other instances, employees used their own
funds or other methods to simulate actual funding of accounts that they had opened
without customer consent.
d. Employees opened unauthorized consumer and business credit card
accounts without customer authorization by submitting applications for credit cards in
customers’ names using customers’ personal information.
e. Employees opened bill pay products without customer authorization;
employees also encouraged customers to make test or “token” payments from their bill
pay accounts to obtain employee sales credit (which was only awarded for bill pay
accounts that had made a payment).
f. Employees at times altered the customer phone numbers, email addresses,
or physical addresses on account opening documents. In some instances, employees did
so to prevent the customers from finding out about unauthorized accounts, including to
prevent customers from being contacted by the Company in customer satisfaction
surveys. Millions of non-Wells Fargo-employee customer accounts reflected a Wells
Fargo email address as the customer’s email address, contained a generic and incorrect
customer phone number, or were linked to a Wells Fargo branch or Wells Fargo
employee’s home address.
17. Employees also intentionally persuaded customers to open accounts and financial
products that the customers authorized but which the employees knew the customers did not
actually want, need, or intend to use. There were many ways in which employees convinced
customers to open these unnecessary accounts, including by opening accounts for friends and
family members who did not want them and by encouraging customers to open unnecessary,
duplicate checking or savings accounts or credit or debit cards. Millions of secondary accounts
and products were opened from 2002 to 2016, and many of these were never used by customers.
18. Gaming conduct and the practice of pushing unnecessary accounts on customers
began in at least 2002 and became widespread over time, lasting through 2016, when the
Community Bank eliminated product sales goals for its employees.
Community Bank Senior Leadership Knew the Unlawful and Unethical Misconduct was
Widespread and that Sales Goals and Pressure Were the Root Cause
19. Beginning as early as 2002, when a group of employees was fired from a branch
in Fort Collins, Colorado, for sales gaming, Community Bank senior leadership became aware
that employees were engaged in unlawful and unethical sales practices, that gaming conduct was
increasing over time, and that these practices were the result of onerous sales goals and
management pressure to meet those sales goals.
20. That information was reported to Community Bank senior leadership, including
Executive A, by multiple channels. Those channels included Wells Fargo’s internal
investigations unit, the Community Bank’s own internal sales quality oversight unit, and
managers leading the Community Bank’s geographic regions, as well as regular complaints by
lower-level employees and Wells Fargo customers reporting serious sales practices violations.
For example, in a 2004 email, an internal investigations manager described his efforts to convey
his concerns about increasing sales practices problems to Community Bank senior leadership: “I
just want [Executive A] to be constantly aware of this growing plague.” In 2005, a corporate
investigations manager described the problem as “spiraling out of control.” This reporting
continued through 2016, and generally emphasized increases in various forms of sales practices
21. By 2012, certain of the RBEs and their direct reports, Regional Presidents, were
regularly raising objections to Executive A and certain individuals reporting to Executive A
about the sales plans. These objections included objections regarding the levels at which the
plans were set, the types and categories of products for which they incented sales, the
accompanying pressure, the resulting no- or low-value accounts, and unlawful and unethical
sales practices at the Community Bank. As of 2012, complaints about the sales goals were
regularly escalated to Executive A. These complaints specifically articulated that the sales goals
were too high and incented Community Bank employees to sell a significant number of lowquality or valueless duplicate products, sometimes through misconduct. Similar complaints
continued to be made until 2016.
22. Certain of the RBEs and those who reported directly to them pushed Executive A
to shift to a model based on true needs-based selling, instead of volume-based selling with less
regard for customer need or account quality. In some cases, Executive A’s senior staff also
questioned the sales model’s focus on low-quality secondary accounts. For example, in
November 2013, a member of the senior staff wrote, “I really question the value of adding
growth to secondary checking in regions that have very high rates to begin with. Based on what
we know about the quality of those accounts it seems like we would want to keep their secondary
DDA flat or down . . . .” A year earlier, another senior staff member suggested eliminating any
incentive payments tied to accounts that never funded, debit cards that were never used, and
more than one demand deposit account per customer per day. Nevertheless, Executive A was
unwilling to fundamentally alter the sales model.
23. Certain Community Bank senior executives believed that some of the
unwillingness to change the sales model was tied to Executive A’s focus on the cross-sell metric.
For example, in an October 2012 email chain with the head of the deposit products group — the
group responsible for the most significant products supervised by the Community Bank,
including checking accounts, savings accounts, and debit cards—the Community Bank’s group
risk officer wondered why Executive A was “putting together a plan that we know isn’t
attainable.” The head of the deposit products group responded that Executive A was “backed up
against the wall due to the cross-sell metric.”
Community Bank Senior Leadership Exacerbated the Sales Practices
Problem and Concealed Material Facts
24. Even though Community Bank employees often did not meet the sales goals—or
met them by selling products and accounts customers neither wanted nor needed—Community
Bank senior leadership increased the sales plans nearly every year through 2013. Pressure to
meet those ever-increasing plans also increased during this time period. Even after 2012, when
Wells Fargo began regularly retroactively lowering goals during the sales year in recognition that
the goals were unachievable, employees still largely missed the lowered goals, an indication that
they continued to be too high.
25. Despite knowledge of the widespread sales practices problems, including the
pervasive illegal and unethical conduct tied to the sales goals, Community Bank senior
leadership failed to take sufficient action to prevent and reduce the incidence of unlawful and
unethical sales practices.
26. Executive A also contributed to the problem by promoting and holding out as
models of success managers who tolerated and encouraged sales integrity violations.
27. Certain Community Bank leaders also impeded scrutiny of sales practices by
Wells Fargo’s primary regulator, the Office of the Comptroller of Currency (“OCC”). During
OCC examinations in February and May 2015, the OCC was given information that minimized
the amount of sales pressure within the Community Bank and the size and scope of Wells
Fargo’s sales practices problem.
28. On numerous occasions, Community Bank senior leadership, including Executive
A, also made statements and gave assurances to the Company’s management and Board of
Directors that minimized the scope of the sales practices problem and led key gatekeepers to
believe the root cause of the issue was individual misconduct rather than the sales model itself.
Until approximately 2015, Community Bank senior leadership viewed negative sales quality and
integrity as a necessary byproduct of the increased sales and as merely the cost of doing
business. They nonetheless failed to advise key gatekeepers of the significant risks that the nonneeds-based selling posed to the Company.
29. Notwithstanding the substantial effect the unused and unauthorized products had
on inflating the cross-sell metric, Executive A continued to tout the cross-sell metric as one of
the Company’s competitive advantages in its public statements to investors. By failing to
disclose the extent to which the cross-sell metric was inflated by low-quality accounts, Executive
A sought not only to induce investors’ continued reliance on the metric but also to avoid
confronting the risk of reputational damage that might arise—and eventually did arise—from
public disclosure of the severity and extent of sales quality problems.
Scope of the Unlawful and Unethical Misconduct
30. Between 2011 and 2016, tens of thousands of employees were the subject of
allegations of unethical sales practices. During this period, the Company referred more than
23,000 employees for sales practices investigation and terminated over 5,300 employees for
customer-facing sales ethics violations, including, in many cases, for falsifying bank records.
Thousands of additional employees received disciplinary action short of termination or resigned
prior to the conclusion of the Company’s investigations into their sales practices.
31. Almost all of the terminations and resignations were of Community Bank
employees at the branch level, rather than managers outside of the branches or senior leadership
within the Community Bank.
32. From 2002 to 2016, Wells Fargo opened millions of accounts or financial
products that were unauthorized or fraudulent. During that same time period, Wells Fargo
employees also opened significant numbers of additional unneeded, unwanted, or otherwise lowvalue products that were not consistent with Wells Fargo’s purported needs-based selling model.
Wells Fargo collected millions of dollars in fees and interest to which the Company was not
entitled, harmed the credit ratings of certain customers, and unlawfully misused customers’
sensitive personal information (including customers’ means of identification). In general, the
unauthorized, fraudulent, unneeded, and unwanted accounts were created as a result of the
Community Bank’s systemic sales pressure and excessive sales goals.
Impact of Sales Practices Misconduct on Cross-Sell Disclosures
33. Accounts and financial products opened without customer consent or pursuant to
gaming practices were included by the Company in the Community Bank cross-sell metric until
such accounts were eventually closed for lack of use. When Community Bank senior leadership
set employee sales goals at a level to achieve year-over-year sales growth, it rarely took into
consideration that the base level of sales included accounts or financial products resulting from
unlawful misconduct or gaming. This had the effect of imposing additional pressure on
employees to continue gaming practices.
34. Like the accounts and financial products lacking customer consent, accounts and
financial products that were never or seldom used by customers were also included by the
Company in the Community Bank cross-sell metric until such accounts were eventually closed
for lack of use, at which time those accounts were removed from the cross-sell metric. In some
cases (like checking or savings accounts), the unused accounts were closed relatively quickly
(usually within 90 days if unfunded), but in other cases (like debit cards, the largest product
category included in the cross-sell metric, or bill pay, another large contributor to cross-sell), the
unused accounts remained open without activity for up to four years.
35. From 2012 to 2016, Wells Fargo failed to disclose to investors that the
Community Bank’s sales model had caused widespread unlawful and unethical sales practices
misconduct that was at odds with its investor disclosures regarding needs-based selling and that
the publicly reported cross-sell metric included significant numbers of unused or unauthorized
accounts. Certain Community Bank senior executives who reviewed or approved the disclosures
knew, or were reckless in not knowing, that these disclosures were misleading or incomplete.
36. At the end of 2012, the Community Bank decided to add existing global
remittance accounts to the calculation of the cross-sell metric over the course of 2013. It did so
by excluding inactive global remittance accounts, in a manner inconsistent with prior practice. It
was never disclosed to investors that the product was added to the metric. By the end of 2013,
the cross-sell metric had grown by .11 since the prior year. However, .04 of that growth resulted
from the addition of global remittance, and the remaining growth was attributable to an increase
in accounts and financial products that had been inactive for at least 365 days. Nonetheless,
WFC’s FY 2013 Form 10-K, filed February 2014, touted that the Community Bank had achieved
record cross-sell over the prior year.
37. Nonetheless, despite the addition of a new product, by late 2013 and early 2014,
quarter-over-quarter growth in the cross-sell metric had flattened, significantly because of a
slowdown in sales growth as a result of, among other things, the Community Bank’s belated
efforts to impose increased controls to curb misconduct resulting from aggressive sales goals. At
a May 2014 Investor Day conference, Executive A responded to a question about what was
causing the cross-sell growth to slow with a misleading answer. Instead of truthfully answering
what she knew at the time—that a significant portion of the decline in cross-sell growth was a
result of declining sales growth, in part caused by the efforts to address historical sales
misconduct—she misleadingly described the cross-sell trend as not “bad news” and offered three
innocuous or positive trends that could impact cross-sell growth over time, two of which she had
no evidence were meaningfully affecting cross-sell growth in 2014. Providing a complete answer
to investors would have required Executive A to acknowledge the sales practices misconduct that
Executive A had failed to disclose in the past as well as Wells Fargo’s growing struggles to grow
its retail bank sales as it had historically.
38. Executive A was again asked about the decline in cross-sell at the May 2016
Investor Day. An analyst noted that the decline was “a bit of a change for [the Community
Bank]” and asked whether it was “an inevitable saturation” or a reflection of “a need for new
products.” Executive A acknowledged that there had been “headwinds,” but attributed the
decline to strong checking account growth (which is generally a first product and therefore
would have potentially diluted the ratio by bringing on new customers who start out with fewer
products) and “the interest rate environment” causing “some products [to not be] particularly
appealing to our customers right now.” However, by failing to acknowledge that declining
product sales, improving sales quality, and the roll-off of low quality accounts was a significant
cause of cross-sell decline, Executive A’s response was again incomplete and misleading.
39. Moreover, in a January 12, 2015, response to an SEC Comment Letter that asked
how the cross-sell metric was calculated and in its 2014 and 2015 Annual Reports, Wells Fargo
characterized the cross-sell metric as a ratio of “products used by customers in retail banking
households.” Prior to and after that time, the metric was described as “products per household,”
“products per retail bank household,” or “the average number of products sold to existing
40. Community Bank executives, including Executive A, knew that the metric
included many products that were not used by customers. Wells Fargo’s inclusion of the word
“used” to describe the accounts was therefore misleading.
41. Several months after changing its disclosure that described how the cross-sell
metric was calculated to characterize the metric as “products used,” Community Bank senior
leadership began to develop an alternative metric to capture products that had been used. The
Community Bank referred to this metric internally as “active cross-sell.” In developing the active
cross-sell metric, Community Bank senior leadership recognized that as many as ten percent of
accounts included in the cross-sell metric had not been used within the previous 12 months. The
Community Bank considered releasing this alternative metric to investors, but never did so, in
part because of concerns raised by Executive A and others that its release would cause investors
to ask questions about Wells Fargo’s historical sales practices.
42. Following the Company’s announcement of the September 2016 settlements with
the OCC, the Consumer Financial Protection Bureau, and the City of Los Angeles that confirmed
publicly for the first time the scale of the sales practices misconduct within the Community
Bank, as well as the widespread media and political criticism of the Company that resulted,
Wells Fargo’s stock experienced three significant stock drops that translated into an
approximately $7.8 billion decrease in market capitalization.