The U.S. Securities and Exchange Commission (SEC) on Friday (Nov. 13) civilly charged former Wells Fargo CEO John Stumpf and Carrie Tolstedt, ex-head of Wells Fargo’s Community Bank, with allegedly misleading investors in connection with the bank’s unauthorized accounts scandal.
Stumpf agreed to settle the charges by paying a $2.5 million penalty, but neither admitted nor denied wrongdoing, according to an SEC press release. Tolstedt, who did not reach a settlement, faces civil charges for allegedly misleading investors about an important performance metric tied to the scandal.
Authorities allege that over a period of years, Wells Fargo allegedly opened new credit cards and other accounts without permission for existing customers with different accounts, so as to meet “cross-sales” targets.
The SEC claims that Tolstedt publicly discussed and endorsed Wells Fargo’s “cross-sell metric” as a way of keeping track of the bank's financial success from mid-2014 to mid-2016. However, the agency claims the data was artificially bolstered by accounts and services that were not utilized, needed or authorized, according to the Commission’s complaint.
The complaint further claims that Tolstedt attested to 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 complaint, which was filed in federal court in California, charges Tolstedt with contravening the antifraud provisions of federal securities regulations and looks for a “permanent injunction, civil penalties, disgorgement with prejudgment interest and an officer-and-director bar,” according to the press release.
The Commission’s order against Stumpf determines that he inked and certified statements with the body in 2015 and 2016 that “he should have known were misleading” when it comes to Wells Fargo’s cross-sell strategy and reported metric.
Stumpf did not successfully assure the accuracy of his certifications after being “put on notice” that Wells Fargo was misleading the public when it came to the cross-sell metric, according to the agency.
“If executives speak about a key performance metric to promote their business, they must do so fully and accurately,” Stephanie Avakian, director of the SEC’s Enforcement Division, said in announcing the cases. “The Commission will continue to hold responsible not only the senior executives who make false and misleading statements, but also those who certify to the accuracy of misleading statements despite warnings to the contrary.”
Attorneys for the two former executives did not immediately reply to a request for comment.
The SEC has already settled charges with Wells Fargo as a company over the scandal. Stumpf also already agreed to pay $17.5 million and was prohibited from working in the banking sector again under a settlement with the Office of the Comptroller of Currency. In 2016, Stumpf announced his resignation as chairman and chief executive of Well Fargo in the scandal’s wake.