The head of the House Financial Services Committee said that in creating millions of phony accounts Wells Fargo broke several laws, including those impacting traders and investors.
“In fact, a whole host of federal laws were potentially violated, including the Truth in Savings Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Electronic Funds Transfer Act, the Securities Act of 1933, the Securities and Exchange Act of 1934, and the Sarbanes-Oxley Act of 2002.” Republican Texas Congressman Jeb Hensarling said.
While the revelations that Wells Fargo bankers fraudulently created accounts has focused on the impact to their customers- including bogus fees and damage to credit scores- it is the violations of the Securities Acts that is pertinent to traders and investors.
“Did you ever disclose this issue on a 10K?” Texas Republican Congressman Randy Neugebauer asked.
“The annual report on Form 10-K provides a comprehensive overview of the company’s business and financial condition and includes audited financial statements,” according to the SEC website.
The form is produced regularly by all publicly traded companies and is available for free to all investors and potential investors.
John Stumpf, the Chairman and Chief Executive Officer of Wells Fargo who testified in front of the House Financial Services Committee, said, “At the time, at the circumstances, we filed accurate reports; we believed that was not material.”
Stumpf suggested that the fraudulent accounts were not material- and thus not required of 10K disclosure- because they represented a fraction of the accounts opened.
But lawmakers were not satisfied with this answer.
Democratic Representative Carolyn Maloney pointed out that Stumpf made his biggest sale of stock since taking over as CEO shortly after revelations of the fraud was made in 2015.
Stumpf acknowledged selling the shares but denied it had anything to do with the scandal.
Maloney also noted that Wells Fargo routinely touted so-called cross-selling (encouraging customers to open more accounts) which has been in part blamed for the scandal regularly in investor calls.
Maloney’s hardline piggybacked on Massachusetts Democratic Senator Elizabeth Warren’s statement when Stumpf testified in front of the Senate last week; Warren noted that on twelve investor calls “you personally cited Wells Fargo’s (cross-selling) success as a reason to invest.”
New York Democratic Congressman Brad Sherman echoed that thought: “What you were doing in constantly reporting your (cross selling) numbers was driving up your stock price.”
“This is about much more than the legal definition of materiality.” Connecticut Democratic Congressman Jim Himes said.
When Senator Pat Toomey originally noted that this was never disclosed to the SEC in the Senate last week, he said even if the fine and the number of accounts were not material, the damage to the bank’s reputation was material and should have been disclosed.
The Industry Spread reached out the SEC to ask if this should have been disclosed and if the failure to disclose was being investigated but the SEC declined to comment.
After spending a decade in finance, Michael Volpe has been a freelance investigative journalist since 2009. His work has been published locally in the Chicago Reader, Chicago Crusader, Chicago Heights Patch, and New City. Nationally, Volpe’s work has appeared in a wide variety of publications including the Washingt
on Examiner, the Daily Caller, Crime Magazine, the Southern Christian Leadership Conference Newsletter, and Counter Punch. Volpe has been recognized by whistleblowers as leading the charge in getting their stories out. His first book Prosecutors Gone Wild was published in October 2012, his second book The Definitive Dossier of PTSD in Whistleblowers was published in February 2013 and his third book Bullied to Death was published in August 2015.