Members of the House Financial Services Committee cast doubt on Wells Fargo’s claims that it didn’t publicly disclose account falsifications in Securities and Exchange Commission filings because the information was “not material.”
Rep. Carolyn Maloney (D-N.Y.) asked CEO John Stumpf at a hearing on Thursday why he personally sold $13 million worth of stock in late 2013–around the same time that he heard of accounts being systemically opened without consumer authorization.
Rep. Brad Sherman (D-Calif.), meanwhile, said that the bank’s stock price would have plummeted, had the control issues been widely known.
Stumpf responded to Maloney’s claims, saying he did not sell the shares because he learned of the problems. He said that he owns four times as many shares today as required.
Stumpf had also said, prior to Sherman’s questions, that Wells Fargo determined the account falsifications were immaterial, vis-a-vis public disclosure laws, because of the relatively small dollar amount involved. He noted that the bank received information about the scope of the problem after an audit from PricewaterhouseCoopers “late in 2015 [or] early ’16.”
“The PWC material looked at 93 million accounts that we opened over four years,” Stumpf said, justifying the reason it wasn’t publicly disclosed as “material” in SEC filings. “They could not rule out through large data analytics about 1.5 percent of those accounts.”
Sherman, however, didn’t buy it. He discussed how the company heavily touted to investors the number of accounts its customers had opened—a fact brought up in the Senate Banking Committee last week by Elizabeth Warren (D-Mass.).
Sherman then cited the fact that–of the 5,300 employees fired by the bank for falsifying 2 million account openings–“peak” terminations occurred in 2013, meaning the company was aware of a problem then.
“Correct,” Stumpf replied.
“Why didn’t you tell shareholders: ‘our penetration rates are phony, our new accounts are phony accounts, and, when we tell you we’re deepening our relationship with our customers, we’re doing so by putting them through the ringer’?” Sherman asked.
“What internal audit system did you have that assured you that you didn’t have a material problem?” he then questioned.
As Stumpf did before the Senate Banking Committee, he replied that the actions were the result of individuals who were fired when caught.
As he had also done before that panel, however, Stumpf seemed to tacitly acknowledge that previous bank-wide practices were problematic.
Stumpf spoke about how the bank is accelerating plans to scrap sales goals by the end of the week. When the scandal first broke earlier this month, Wells Fargo said targets would remain in place until Jan. 1, 2017.
News of the falsifications emerged on Sept. 8, when regulators announced the bank would be fined $185 million as a result of the unauthorized account openings.
In a consent agreement with the Consumer Financial Protection Bureau, the bank admitted that its employees had opened more than 2 million accounts in customers names without their prior approval. Company account targets, the CFPB noted, had led to “Improper Sales Practices.”
Since the settlement was announced, the bank’s stock price has fallen by about 10 percent.
On Thursday, three Democrats on the Senate Banking Committee wrote to the SEC, asking its chair, Mary Jo White, to open an investigation into the bank.
Sens. Warren, Jeff Merkley (D-Ore.) and Robert Menendez (D-N.J.) said Wells Fargo executives may have “violated laws by misleading investors and firing whistleblowers while the bank oversaw the creation of millions of unauthorized, fraudulent accounts.”
The trio “asked the SEC to look at whether the bank committed securities fraud by failing to disclose problems with fake accounts while promoting its so-called cross-sell ratio to investors,” the Wall Street Journal reported.
