Post by anenro on Sept 30, 2021 17:27:31 GMT 4
Wells Fargo Gets Into Trouble Yet Again Over Alleged Fraud
There’s a concept in finance called a bad bank. A practice first started in the late 1980s, when general conditions make a lot of loans begin to default, a bank will set up a separate entity and transfer the toxic assets over at market price, which often means writing down a loss. But it gets the bad debt off the “good” bank’s balance sheet.
That’s not what Wells Fargo WFC +2.4% is. The institution is one of the largest banks in the U.S. and an ongoing source of some difficult to differentiate apparent combination of misfeasance, nonfeasance, and malfeasance. There was the 2016 revelation of falsely opening accounts in customers’ names without permission and the resulting $3 billion fine, as NBC News and others had reported.
Now there’s another scandal. The FBI and Office of the U.S. Attorney for the Southern District of New York both filed and settled a civil suit against Wells Fargo on Monday. The suit alleged that the bank “violated the Financial Institutions Reform Recovery and Enforcement Act (“FIRREA”) by fraudulently overcharging hundreds of commercial customers, many of them small and medium-sized businesses and federally-insured financial institutions, who used the Bank’s MTB +1.2% foreign exchange (“FX”) service.”
FX refers to the international trade in currency, a complex market where money is made and lost in a bewildering and constantly shifting array of selling and buying. The lawsuit claimed that Wells Fargo “defrauded 771 customers by systematically charging them higher markups on FX transactions than they represented the Bank would charge, and concealing these overcharges through various misrepresentations and deceptive practices.” According to court papers, many of the customers were small- or medium-sized businesses or federally insured institutions.
To settle the suit, Wells Fargo is to pay $72.6 million, with half going to the 771 customers and the other half to the U.S. as civil penalties and asset forfeiture.
The list of alleged actions is lengthy:
Wells Fargo marked up the prices on currencies it sold and market down those it bought.
The FX sales group had agreements with customers for fixed spreads between buy and sell prices, but then “surreptitiously and systematically” charged much higher spreads, pocketing millions for Wells Fargo.
Rather than use rates at the time a wire transfer was converted, the group would cherry-pick rates from other times in the day to get greater advantage for the bank.
Some people would make up rates and calculations to pretend that they were meeting their obligations. They would also transpose numbers to inflate profits and, if caught, would claim it was an honest mistake.
As customers were identified in transactions, the salespeople would take bigger liberties with those who were thought to be less experienced in FX trading.
If customers did notice issues, the salespeople would lie and sometimes create fake transaction data.
Sales personnel in the group received incentives for the money they brought in.
Now, I might just have missed something, but when I went through the government’s press release and court filings, I didn’t see the usual wording that Wells Fargo did not admit to wrongdoing. Instead, there was this line: “Wells Fargo admits, acknowledges, and accepts responsibility for the following conduct.”
As the press release noted: “In the settlement, Wells Fargo acknowledged that it took adverse employment actions against more than 20 Wells Fargo employees who were involved in the FX business, including various disciplinary actions and separation of employment, and affirmed that it has taken various steps in an effort to comply with industry FX best practices. This matter was initially brought to the Government’s attention by a whistleblower who filed a confidential declaration with the U.S. Department of Justice pursuant to the Financial Institutions Anti-Fraud Enforcement Act.”
This ongoing saga of Wells Fargo and alleged cases of fraud leaves me with only two questions:
As this case refers to actions from 2010 to 2017, and as the previous cases were also from earlier years, is this something that finally will stop? Does the bank have the necessary culture, controls, and management to eliminate the problems?
Why would anyone trust this bank in any form at all?
As an addendum, here’s part of a statement that Wells Fargo just sent over:
The settlement announced by the Southern District of New York’s Civil Division reflects a $37.3 million payment related to pricing issues in our FX business that occurred prior to 2017. This past behavior was unacceptable. Since that time, Wells Fargo has paid approximately $35 million to fully remediate affected clients and extensively reviewed our FX pricing practices and procedures. We have significantly improved our business policies, procedures and oversight related to the management and pricing of FX transactions. We remain committed to serving the needs of our FX clients.
We’ll see. I still like to remember William Faulkner’s line, “The past isn’t dead. It isn’t even past.” Perhaps in life if people and institutions could remember this, they might be able to change.
There’s a concept in finance called a bad bank. A practice first started in the late 1980s, when general conditions make a lot of loans begin to default, a bank will set up a separate entity and transfer the toxic assets over at market price, which often means writing down a loss. But it gets the bad debt off the “good” bank’s balance sheet.
That’s not what Wells Fargo WFC +2.4% is. The institution is one of the largest banks in the U.S. and an ongoing source of some difficult to differentiate apparent combination of misfeasance, nonfeasance, and malfeasance. There was the 2016 revelation of falsely opening accounts in customers’ names without permission and the resulting $3 billion fine, as NBC News and others had reported.
Now there’s another scandal. The FBI and Office of the U.S. Attorney for the Southern District of New York both filed and settled a civil suit against Wells Fargo on Monday. The suit alleged that the bank “violated the Financial Institutions Reform Recovery and Enforcement Act (“FIRREA”) by fraudulently overcharging hundreds of commercial customers, many of them small and medium-sized businesses and federally-insured financial institutions, who used the Bank’s MTB +1.2% foreign exchange (“FX”) service.”
FX refers to the international trade in currency, a complex market where money is made and lost in a bewildering and constantly shifting array of selling and buying. The lawsuit claimed that Wells Fargo “defrauded 771 customers by systematically charging them higher markups on FX transactions than they represented the Bank would charge, and concealing these overcharges through various misrepresentations and deceptive practices.” According to court papers, many of the customers were small- or medium-sized businesses or federally insured institutions.
To settle the suit, Wells Fargo is to pay $72.6 million, with half going to the 771 customers and the other half to the U.S. as civil penalties and asset forfeiture.
The list of alleged actions is lengthy:
Wells Fargo marked up the prices on currencies it sold and market down those it bought.
The FX sales group had agreements with customers for fixed spreads between buy and sell prices, but then “surreptitiously and systematically” charged much higher spreads, pocketing millions for Wells Fargo.
Rather than use rates at the time a wire transfer was converted, the group would cherry-pick rates from other times in the day to get greater advantage for the bank.
Some people would make up rates and calculations to pretend that they were meeting their obligations. They would also transpose numbers to inflate profits and, if caught, would claim it was an honest mistake.
As customers were identified in transactions, the salespeople would take bigger liberties with those who were thought to be less experienced in FX trading.
If customers did notice issues, the salespeople would lie and sometimes create fake transaction data.
Sales personnel in the group received incentives for the money they brought in.
Now, I might just have missed something, but when I went through the government’s press release and court filings, I didn’t see the usual wording that Wells Fargo did not admit to wrongdoing. Instead, there was this line: “Wells Fargo admits, acknowledges, and accepts responsibility for the following conduct.”
As the press release noted: “In the settlement, Wells Fargo acknowledged that it took adverse employment actions against more than 20 Wells Fargo employees who were involved in the FX business, including various disciplinary actions and separation of employment, and affirmed that it has taken various steps in an effort to comply with industry FX best practices. This matter was initially brought to the Government’s attention by a whistleblower who filed a confidential declaration with the U.S. Department of Justice pursuant to the Financial Institutions Anti-Fraud Enforcement Act.”
This ongoing saga of Wells Fargo and alleged cases of fraud leaves me with only two questions:
As this case refers to actions from 2010 to 2017, and as the previous cases were also from earlier years, is this something that finally will stop? Does the bank have the necessary culture, controls, and management to eliminate the problems?
Why would anyone trust this bank in any form at all?
As an addendum, here’s part of a statement that Wells Fargo just sent over:
The settlement announced by the Southern District of New York’s Civil Division reflects a $37.3 million payment related to pricing issues in our FX business that occurred prior to 2017. This past behavior was unacceptable. Since that time, Wells Fargo has paid approximately $35 million to fully remediate affected clients and extensively reviewed our FX pricing practices and procedures. We have significantly improved our business policies, procedures and oversight related to the management and pricing of FX transactions. We remain committed to serving the needs of our FX clients.
We’ll see. I still like to remember William Faulkner’s line, “The past isn’t dead. It isn’t even past.” Perhaps in life if people and institutions could remember this, they might be able to change.