Federal regulators have issued Wells Fargo formal orders demanding they get better at catching customers who misuse their services for criminal acts, as the bank faces a lawsuit alleging they allowed a $460 million Ponzi scheme to operate.
A Wall Street Journal report with inside sources revealed that the Federal Reserve is coming down on Wells Fargo for their struggle to get in compliance with its regulatory obligation to monitor financial crime, and a “public penalty such as a consent order” may be on the table.
The bank has been wrapped up in controversy for years, with the Securities and Exchange Commission (SEC) announcing charges against them in May 2022 for failing to file at least 34 Suspicious Activity Reports (SARs) in a timely manner between April 2017 and October 2021.
When Wells Fargo failed to file those reports, they were in violation of the Bank Secrecy Act— a law requiring financial institutions to assist government agencies in preventing money laundering and other criminality. The broker-dealer agreed to pay $7 million to settle the charges at the time.
The new Journal report revealed that after regulators privately brought up those concerns, Wells Fargo replaced their executive who was responsible for keeping the company in compliance with the legislation in an effort to “rebuild its sprawling risk and control apparatus so it can better prevent and catch problems.”
The bank was exposed in 2016 by the Consumer Financial Protection Bureau for allowing employees to create “more than two million deposit and credit card accounts” without customer knowledge in order to boost sales statistics, resulting in consumer loss. At the time, regulators punished them for having inadequate risk management by capping the size of their balance sheet, which is the “stiffest” penalty Wells Fargo has received so far, according to the Journal report.
Elected officials have demanded more accountability for Wells Fargo on multiple occasions, including Sen. Elizabeth Warren’s (D-MA) 2021 call for the Federal Reserve to break them up.
In her letter to the central bank, Warren argued that “millions of customers remain at risk” of “negligence and willful fraud” in Wells Fargo’s hands.
While regulators are “focused on the bank’s broad consumer-watching systems,” Wells Fargo is also currently the target of lawsuit allegations that “suggest what can go wrong when a bank’s monitoring systems fail,” the Journal reported.
Las Vegas lawyer Matthew Beasley was indicted in March on five counts of wire fraud and three counts of money laundering. Federal prosecutors are alleging that he scammed people into investing in a fake personal injury lending business, leading “1,000 victim-investors to part with more than $460 million.” Law enforcement officials allege that he used the money wired to his Wells Fargo bank account to “buy luxury homes, cars, and recreational vehicles.”
Four class-action lawsuits filed against Wells Fargo and consolidated in June are accusing the bank of “aiding and abetting this Ponzi scheme” by ignoring their duty to investigate.
According to the lawsuit, Beasley was maintaining a close relationship with Wells Fargo while he committed the alleged scheme. The class action accuses the disgraced lawyer of having regular meetings with one particular banker, even going so far as to drink alcohol and attend a professional hockey game together.
A spokeswoman for Wells Fargo disputed the lawsuit’s allegations, and has “cooperated” with law enforcement in their investigation, the Journal reported.
Court filings show that the parties are currently in settlement talks.
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