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Compliance Corner: SEC, Wells Fargo, Others

Editorial Staff

16 November 2020

SEC
The former chief executive of Wells Fargo, John Stumpf and former top executive Carrie Tolsted allegedly misled shareholders about the success of the US firm’s community bank, the Securities and Exchange Commission said last week. Tolstead was head of the Community Bank.

Stumpf, who left Wells Fargo in 2016 after the bank’s misdeeds were exposed, agreed to pay a $2.5 million fine to settle the allegations, the SEC said. He and Tolstedt, who didn’t reach a settlement of the claims against her, knew or should have known that the statements they signed attesting to the success of the bank’s “cross-sell metric” were false or misleading, the regulator said. Tolstedt also left the bank in 2016.

The SEC said it charged the duo for “allegedly misleading investors about the success of the Community Bank, Wells Fargo’s core business.”

The SEC previously filed settled charges against Wells Fargo for engaging in the misconduct. 

From mid-2014 through mid-2016, Tolstedt publicly described and endorsed Wells Fargo’s “cross-sell metric” as a means of measuring Wells Fargo’s financial success despite the fact that this metric was inflated by accounts and services that were unused, unneeded, or unauthorized, the SEC said.

The complaint further alleged that Tolstedt signed misleading sub-certifications confirming 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’s order against Stumpf found that in 2015 and 2016 he signed and certified statements filed with the Commission, which he should have known were misleading, regarding both Wells Fargo’s Community Bank cross-sell strategy and its reported metric. According to the order, Stumpf “failed to assure the accuracy of his certifications after being put on notice that Wells Fargo was misleading the public about the cross-sell metric.”

“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. “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.”

The SEC’s complaint, filed in the US District Court for the Northern District of California, charges Tolstedt with violating the anti-fraud provisions of the federal securities laws and seeks a permanent injunction, civil penalties, disgorgement with prejudgment interest, and an officer-and-director bar. 

In the SEC’s administrative proceeding, Stumpf, without admitting or denying the SEC’s findings, has agreed to cease and desist from committing or causing any future violations of Sections 17 and 17 of the Securities Act of 1933 and to pay a civil penalty of $2.5 million. The SEC will combine this money with $500 million paid by Wells Fargo in a previous settlement and distribute the sum to harmed investors.