New York, New York, USA – May 31, 2012: A Wells Fargo sign at a Wells Fargo location in Midtown Manhattan. Manhattan buildings can be seen in the background. (wdstock)
The Illinois treasurer’s office suspended billions of dollars in trading activity with Wells Fargo & Co. on Monday, becoming the second state to cut off business with the bank after its $185 million settlement over charges it created as many as 2 million unauthorized accounts.
Illinois state Treasurer Michael Frerichs said his office will suspend its investments in the bank’s Fargo debt securities and stop using Wells Fargo as a broker-dealer, a move that will cost the bank millions of dollars in fees. Frerichs said he will re-evaluate the bank in a year.
“We have a choice where we invest taxpayer money. We will not reward companies that irresponsibly open new bank accounts and improperly repossess vehicles of members of our armed forces,” Frerichs said. “We also must determine if inactive bank accounts were involved. If so, there might be a violation of the state’s unclaimed property act similar to recent issues with unpaid life insurance policies and uncashed rebate checks.”
The sanctions, announced during a morning press conference in Chicago, follow a two-week stretch in which Wells Fargo chief executive John Stumpf was twice summoned to Capitol Hill to be grilled by House and Senate lawmakers. In the buildup to the House Financial Services Committee’s hearing, California Treasurer John Chiang suspended some of the state’s most lucrative lines of business with the San Francisco-based bank, calling the sales scheme a “legal and ethical outrage.”
Wells Fargo reached the settlement with Los Angeles and federal regulators in early September to resolve charges that thousands of employees, in a scheme driven by sales goals and salary bonuses, opened as many as 1.5 million deposit accounts and applied for up to 565,000 credit cards without their customers’ knowledge.
In congressional hearings last month, Stumpf told lawmakers he was “deeply sorry” and noted that the bank has eliminated sales goals. During the Senate banking committee hearing, Sen. Elizabeth Warren,D-Massachusetts, urged Stumpf to resign and “give back the money you took when this scam was going on.”
A week later, the bank’s board announced that Stumpf would forfeit $41 million in unvested equity awards and that Carrie Tolstedt, the Wells Fargo executive in charge of the bank’s retail business, would give up $19 million in equity awards while also leaving the bank immediately, rather than retiring at the end of the year.
The bank’s board hired Shearman & Sterling to conduct an independent investigation into the bank’s retail sales practices, saying that Stumpf would not receive a salary during that probe or a bonus at the end of the year.
Democrats and Republicans have united in tongue-lashing Stumpf, who has drawn criticism in the weeks since the settlement for appearing to blame the low-level employees who opened unauthorized accounts, sometimes by creating phony email addresses. But, while many Democrats have touted the settlement as a trophy for the Consumer Financial Protection Bureau, Republicans have questioned the competency of regulators.
U.S. Rep. Jeb Hensarling, chairman of the House Financial Services Committee, opened last week’s hearing by rattling off a list of laws that Wells Fargo might have violated, including the Electronic Funds Transfer Act, the Securities and Exchange Act and the Sarbanes-Oxley Act. But he was not prepared to give the regulators credit for cracking down on the scheme, which the Los Angeles Times uncovered in 2013.
“It is impossible at this time, based on the information we have, to draw firm conclusions about the performance of our regulators, but all this does raise serious questions,” Hensarling said Thursday. “Maybe or federal regulators deserve a pat on the back, but maybe they deserve a swift kick on the backside. We’ll find out which.”