2. Wells Fargo & Co.
Company Description:
Wells Fargo & Company is a diversified financial services company pro-
viding banking, insurance, investments, mortgage, leasing, credit cards,
and consumer finance. The company operates through physical stores,
the Internet and other distribution channels across the United States and
internationally.
The company operates through three operating segments:
•• Community Banking: 57.33% of revenue. The segment offers a complete
line of diversified financial products and services to consumers and small
businesses. It also offers investment management and other services
to retail customers and securities brokerage through affiliates. These
products and services include the Wells Fargo Advantage FundsSM, a
family of mutual funds. Its Loan products include lines of credit, auto
floor plan lines, equity lines and loans, equipment and transportation
loans, education loans, origination and purchase of residential mortgage
loans and servicing of mortgage loans and credit cards.
•• Wholesale Banking: 30.1% of revenue. The segment provides financial
solutions to businesses across the United States. It also provides a com-
plete line of commercial, corporate, capital markets, cash management
and real estate banking products and services.
•• Wealth and Investment Management: 18.33% of revenue. The segment
provides a full range of personalized wealth management, investment
and retirement products and services to clients across US. It also pro-
vides affluent and high net worth clients with a complete range of wealth
management solutions, including financial planning, private banking,
credit, investment management and fiduciary services.
Company’s revenue as of 31 December 2015: USD 86,057 million
(GBP 28,040 million).
Sales Breakdown per Regions:
•• United States: 99.2% of revenue
•• Other regions: 0.8% of revenue
Ethical Breaches:
Alcohol
Wells Fargo’s Beverage Finance Group provides services for the wine, beer,
spirits, and soft drink industry. The group offers among other services,
financing, territory and brand acquisitions, as well as warehouse construc-
tion and expansion.
Since the company finances the alcohol industry but it is not directly in-
volved in alcohol production or sale, it does not breach the ethical criteria.
Military
Wells Fargo has made an estimated USD 10,145 million available to the
nuclear weapons companies listed on Thomson ONE Banker since January
2012. It provided loans (closed since January 2012 or maturing after Au-
gust 2015) for an estimated amount of USD 5,642 million to the nuclear
weapon companies (BAE Systems, Boeing, CH2M Hill, General Dynamics,
Honeywell International, Huntington Ingalls Industries, Jacobs Engineering,
Lockheed Martin, Moog, Northrop Grumman, Orbital ATK, and Textron).
In 2015 Wells Fargo has been cited for being among the leading US-based
investors in cluster bombs.
Considering that since 2012 Wells Fargo made available over USD 10
»» Company Name:
Wells Fargo & Co
»» Materiality Risk Rating
Medium
»» Country:
United States
»» ISIN:
US9497461015
»» Sector:
Financials
»» Market Cap:
USD 249.943 billion as of 24
May 2016.
»» Number of Employees:
264,700 employees as of 31
December 2015.
»» Company Headquarters:
San Francisco, US.
»» Company’s website:
www.wellsfargo.com
3. Soraron Sustainability Services 3
billion available to producers of nuclear weapons, including cluster munitions manufacturers, out of which
USD 5.6 billion represented loans, the company might breach the ethical criteria on military involvement.
Positive impact:
Wells Fargo offers a complete line of diversified financial products and services to consumers and small busi-
nesses as main part of its daily activity. In addition, it develops programmes for underserved communities by
promoting financial inclusion and financial literacy.
True ESG Risks & Opportunities:
Wells Fargo proves lax governance and oversight practices through the controversies generated around
its mortgage practices, anti-money laundering compliance program and unfair sales practices. Moreover,
Wells Fargo is known for financing cluster munitions manufacturers, thus raising considerable doubts on its
acceptability in any investment universe and the need for a direct engagement.
Wells Fargo & Co has sound management systems in place to minimize its environmental impact. The bank
achieved important reductions for water use, energy consumption and GHG emissions, while new targets
were set for 2020.
On the Social side, the bank emphasizes on diversity and inclusion among its employees and community and
recognizes the importance of the Human Rights. The Supplier Code of Conduct reflects the bank’s values on
environmental stewardship, diversity and ethics. Moreover, Wells Fargo has several programs and collabora-
tions with other organizations, in order to reach underserved communities and to promote financial inclusion
and financial literacy. However, on the corporate lending, responsible sales and practices and business ethics,
there are gaps between the bank’s policies and its actual behaviour.
Wells Fargo, which has no policy in place to restrict financial services to companies involved in the production
of controversial weapons, made available since 2012 over USD 10 billion to producers of nuclear weapons,
including cluster munitions manufacturers like Lockheed Martin. With this important involvement in the
weapons’ industry and being recognized as a leading US investor in cluster bombs, Wells Fargo can be in
breach with the ethical criteria. However, the bank’s Environmental and Social Risk Management (ESRM)
policy makes references to other sensitive industries such as coal mining, where the company has a more
categorical approach by limiting and reducing its credit exposure.
Despite the fact that Wells Fargo declares to go beyond regulatory requirements to develop fiscally and
socially conscious products, it has been involved in important controversies related to its mortgage products.
In April 2016 Wells Fargo admitted it had falsely certified home mortgage loans between 2001 and 2010
and was hit with the largest settlement payment by FHA – USD 1.2 billion. In May 2016 the US Office of the
Comptroller of the Currency (OCC) fined Wells Fargo USD 70 million for failing to correct the shortcomings
identified in 2011 related to the mortgage practices.
The recurrent violations on mortgage products, which included even predatory and discriminatory accusations,
demonstrate that the company did not comply with its commitments taken as part of several settlements
it reached with customers and authorities over the matter. The bank repeatedly engaged in unfair practices
towards customers, acted in an irresponsible manner in programs designed to help people modify their
mortgage loans, and caused dissatisfaction among customers.
In addition, the company was sued in the recent years by investors for breaching its fiduciary duty, misleading
and failing to fulfill its duties. The majority of the cases were settled by the bank.
Sales tactics, too, are an area of concern, as the company was sued by customers and by the city of Los An-
geles for having allegedly encouraged its employees to engage in fraudulent conduct due to a high-pressure
sales culture. The city investigation revealed that the bank did not take all the necessary measures to address
the situation.
The OCC issued in December 2015 a “consent and desist order” against Wells Fargo for failing to correct
previously identified AML problems. This is another particular area of concern for Wells Fargo, considering
its past involvement in serious money laundering processes by narcotics traffickers through Wachovia bank
between 2004 and 2007.
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Sustainability details on main Key Performance Indicators (KPIs):
Labour Management:
•• The company claims to provide market competitive compensation, career-development opportunities,
strong work-life programs, and benefits such as medical, dental, vision, life and accident insurance, disabil-
ity, flexible spending accounts, commuter benefits and others.
•• Starting with June 2016, the company expanded its benefits to include paid parental leave, paid critical
caregiving leave, and backup adult care.
•• In 2015, Wells Fargo states that the minimum hourly rate was 59% above the federal minimum wage and
above the highest state minimum wage.
•• According to the company, it complies with the regulatory safety standards and many of its locations have
safety committees. However, there is no evidence of disclosure on safety-related parameters.
•• There is an Enterprise Diversity and Inclusion Council to set the strategic direction and implement infra-
structure and measurements that works with the Operating Committees on three strategic outcome areas:
increase team member diversity and inclusion; continue to grow market share in diverse market segments;
and support diversity and inclusion in the community.
•• The company recognizes the fundamental importance of respecting human rights through its Human
Rights Statement.
Supply Chain Management:
•• There is a Supplier Diversity strategy to develop and use certified diverse suppliers.
•• In 2015, the bank formed a working group to assess the needed steps to ensure there is no modern slavery
or human trafficking in its business and supply chain. A formal statement is developed in response to the
United Kingdom Modern Slavery Act.
•• There is a Supplier Code of Conduct in place, which outlines the expectations for ethical business practices,
environmental stewardship, diversity, and corporate citizenship.
•• In 2014, Wells Fargo implemented an annual Supplier Environmental Information Request (SEIR) process to
monitor the performance of key suppliers on a range of environmental attributes, including sustainability
governance, greenhouse gas emissions, energy efficiency, water efficiency, and waste reduction.
Financial Inclusion:
•• Wells Fargo works with community partners, government agencies, and NGOs to reach underserved
communities and educate them about the safety and convenience of bank accounts and how to properly
manage those accounts and avoid fees. For instance, the bank supports Bank On since 2006, a nonprofit
dedicated to supporting local government leadership on priorities such as access to safe and affordable
financial products and services and financial counseling.
•• To support Hispanic to become homebuyers, a collaboration was set with the National Association of
Hispanic Real Estate Professionals’ Hispanic Wealth Project. Among its goals, Wells Fargo aims to increase
the number of Hispanic mortgage consultants, and provide USD 10 million to support initiatives that
promote financial education and counseling.
•• Wells Fargo offers micro-grants, a leadership training impact study, and plans the expansion of the Chamber
Training Institute (CTI), co-founded in 2010, to include other diverse segment chambers that specifically
serve and represent African American, Hispanic, Asian American, and LGBT business-owner interests.
•• The company claims to offer fair, affordable, and responsible deposit account options for all its customers.
The standard checking account - Everyday Checking, often includes the unbanked and underbanked.
•• Customers who do not have a credit history or have been turned down for credit in the past, are offered
options for building or rebuilding their credit through the Wells Fargo Secured Card.
•• Unbanked and underbanked communities are increasingly using mobile technology, hence the bank aims
to provide convenient and secure ways for them to receive information and access and manage their
accounts.
•• Wells Fargo’s Community Lending and Investment provides affordable housing financing in the US through
5. Soraron Sustainability Services 5
lending, tax credit equity investments, and real estate development commitments that support develop-
ment for low- and moderate-income families, seniors, and veterans, as well as projects that incorporate
energy efficiency.
•• The bank invests in nonprofit microfinance lenders that help self-employed, low- and moderate-income
people start or expand their businesses in rural and urban communities, coast to coast, and across the globe.
•• 1,675 retail banking stores out of 6,100 across the US are situated in low- and moderate-income areas.
Financial Literacy:
•• Hands on Banking program, and its Spanish-language counterpart, is a free money management program
that teaches about the basics of responsible money management, including how to create a budget, save
and invest, borrow responsibly, buy a home, and establish a small business.
•• Hands on Banking for Seniors, is a fully accessible program for seniors, their caregivers, and loved ones
that addresses retirement planning, spending management, health care cost issues, and also how to spot
and avoid elder financial abuse.
•• Another initiative is focused on expanding programs and capabilities dedicated to serving customers with
disabilities and their families. For example, the company is working with the National Disability Institute
to provide the Hands on Banking® financial education program through its American Job Centers to help
improve the financial capabilities of youths and adults with disabilities.
•• During 2015, a team of 3,137 members delivered Hands on Banking workshops to 165,700 individuals and
families during the American Bankers Association’s (ABA’s) Teach Children to Save and Get Smart About
Credit campaigns.
Lending Approach & Project Finance:
•• The bank provides a range of resources and support to enable customers and communities to adapt to
climate change, conserve resources, improve efficiency, reduce energy costs, and create jobs. Since 2012
it has invested and financed more than USD 52 billion in renewable energy, clean technology, “greener”
buildings, sustainable agriculture, and other environmentally sustainable businesses.
•• In 2015, Wells Fargo Securities (a member of the Green Bond Principles) managed or co-managed more
than USD 2 billion in green bonds to help municipalities and universities finance their environmental sus-
tainability initiatives.
•• Wells Fargo has an Environmental and Social Risk Management (ESRM) statement and policy that cover
a range of sensitive industries, including oil and gas, coal and metal mining, power and utilities, and agri-
culture. It includes policies and processes on how to evaluate and consider issues faced by the customers,
including resource scarcity, water use and quality, occupational health and safety, human rights, energy
consumption, and community impacts in identified sectors.
•• According to ESRM, the bank continues to limit and reduce its credit exposure to the coal mining industry.
The involvement with the practice of Mountaintop Removal (MTR) is also limited and declining.
•• Wells Fargo adopted the Equator Principles in 2005. However, the bank has conducted minimal project
finance in the past and has not participated in EP transactions. Nevertheless, Equator Principles require-
ments are codified in the Environmental and Social Risk Management Policy and supporting credit policy.
•• There is no evidence of policy that bans or restricts the provision of financial services to companies with
known involvement in the manufacture or sale of cluster munitions or landmines.
•• Wells Capital Management, an asset management businesses of Wells Fargo, joined PRI on 22 April 2015.
Responsible Sales and Marketing:
•• Wells Fargo has adopted principles and procedures to ensure that its advertising, marketing, and sales
materials are clearly, accurately, and fairly representing the products and services.
•• As well, the bank commits to treat all customers with respect, and comply with applicable legal and regu-
latory requirements.
•• Consumer-lending businesses are guided by responsible lending policies and practices, to ensure a fair and
consistent basis without bias.
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•• Policies that support fair and responsible lending are: the Code of Ethics and Business Conduct, Fair and
Responsible Home Lending policy, Real Estate Lending and Servicing Principles, and Wells Fargo’s Lending
Principles for Education Financing.
Data Privacy:
•• The bank has developed and implemented privacy and information security policies that are designed to
comply with applicable legal standards to protect its customers’ private information from unauthorized
access and use.
•• In 2015 Wells Fargo created an Information Risk Management group within Corporate Risk to further
strengthen its processes in taking a comprehensive approach to managing information risk.
Customer Satisfaction:
•• Wells Fargo measures customers’ satisfaction through regular research and surveys using online, phone, mo-
bile, mail, and ATM channels, and qualitative focus groups and interviews. The results are shared with senior
leaders and combined with other operating and organizational metrics to improve products and programs.
•• In fourth quarter of 2015, almost 78% of customers indicated they were “extremely satisfied” with their
recent visit to a bank’s store.
Business Ethics:
•• Wells Fargo commits to go above and beyond regulatory requirements and industry standards to develop
policies, practices, and products that are fiscally responsible, and socially and environmentally conscious.
•• There is a Corporate Responsibility Committee (CRC) to oversight the company’s policies, programs, and
strategies regarding significant CSR matters.
•• The Wells Fargo Code of Ethics and Business Conduct was updated on 1 April 2016, and it ensures guidance
on conflicts of interest, bribery and corruption, competition, insider trading, political activities and others.
•• Wells Fargo has a Global AML (Anti-Money Laundering) Governance Policy and related procedures designed
to comply with all applicable laws and regulations related to money laundering and terrorist financing.
•• To manage the risks of unethical practices, in 2015 the bank established the Office of Global Ethics and
Integrity (GEI), which is charged with fostering and enhancing a culture of ethics and integrity throughout
the company. GEI provides centralized and independent oversight of ethics, business conduct, and conflict
of interest activities.
•• All team members, including executive officers, are required to complete annual training to recertify their
compliance and understanding of the Code of Ethics and Business Conduct.
•• Wells Fargo states to have zero tolerance for corrupt behavior and that the Anti-Corruption Policy ensures
compliance with applicable laws related to bribery or corruption. Anti-Bribery and Corruption training is
also required annually to help team members recognize and mitigate bribery and corruption risk and
understand their responsibility to report concerns.
Environmental Impact:
•• As part of 2020 CSR Commitment, Wells Fargo set new goals. These include a 45% reduction in absolute
GHG emissions and 65% reduction in water use. In addition, a new goal aims for 100% operations powered
with renewable energy by 2017 and the bank is also striving to ensure that all newly constructed office
buildings are net positive energy.
•• The bank has an Environmental Management System aligned with ISO 14001.
•• Among environmental achievements, the bank notes the decrease of water use by 47% and a 26% de-
crease of energy consumption compared with 2012, while GHG emissions decreased with 30% compared
with 2008. For these results, the bank invested in efficient landscape irrigation management, “Greener”
data centers, solar panel systems, usage of electric vehicles, LED upgrade, and others.
•• The primary types of waste are paper and decommissioned technology products that are sent for recycling.
•• 95% of the paper used is made from over 80% post-consumer waste and it is FSC (Forest Stewardship
Council) certified.
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•• There is no evidence of targets to reduce paper use. However, online services, envelope-free ATMs, e-re-
ceipts, and/or text receipts and electronic statements saved important amounts of paper.
Due Diligence: Summary of company’s main controversies
related to its KPIs
Irregularities in the Sale of Mortgage Products:
Federal and state government agencies, including the US Department of Justice, continue investigations
or examinations of certain mortgage related practices of Wells Fargo and predecessor institutions. Wells
Fargo, for itself and for predecessor institutions, has responded, and continues to respond, to requests from
these agencies seeking information regarding the origination, underwriting and securitization of residential
mortgages, including sub-prime mortgages.
•• On 25 May 2016, the US Office of the Comptroller of the Currency (OCC) fined Wells Fargo & Co USD 70
million for failing to correct the shortcomings identified in the 2011 consent orders related to mortgage
practices on time, but it freed the bank from loan-servicing restrictions imposed in 2015. On 17 June 2015,
the US Office of the Comptroller of the Currency (OCC) imposed restrictions on the mortgage-servicing
operations of six companies, including Wells Fargo & Co for failing to fully comply with some 2011 en-
forcement orders related to past home foreclosure abuses. According to the office, Wells Fargo failed to
comply with 15 out of 98 action items.
•• Wells Fargo said it has implemented significant changes to the mortgage servicing operations and achieved
compliance with major elements of the original Consent Order. However, the regulator said Wells Fargo
was hit with the hardest blow as it did not reach the expected changes to comply with regulations.
•• On 3 February 2016, Wells Fargo & Co agreed to pay a total of USD 1.2 billion in order to settle a lawsuit
filed in 2012 by the US Department of Justice (DoJ) in the US District Court for the Southern District of
New York (Manhattan), over alleged engagement in mortgage fraud. The company had been accused of
improperly certifying government-backed home mortgage loans between 2001 and 2010.
•• According to the settlement approved on 8 April 2016, Wells Fargo “admits, acknowledges, and accepts
responsibility” for having from 2001 to 2008 falsely certified that many of its home loans qualified for FHA
insurance. It also admitted to having from 2002 to 2010 failed to file timely reports on several thousand
loans that had material defects or were badly underwritten. This payment is the largest in FHA history
over loan origination violations and it also resolves claims against Kurt Lofrano, a former Wells Fargo vice
president.
•• On February 2, 2016, the US District Court for the Northern District of California certified a class of
homeowners in two lawsuits against Wells Fargo & Co’s Wells Fargo Bank NA, claiming that Wells Fargo vi-
olated California consumer-rights laws by misrepresenting the terms of the Home Affordable Modification
Program (HAMP) trial period plans (TPP), designed to help people modify their mortgage loans.
•• On 5 November 2015, the US Department of Justice (DOJ) announced that Wells Fargo & Co agreed to
pay USD 81.6 million to settle claims that it failed to notify 68,000 homeowners in bankruptcy of changes
in their mortgage payments, violating a 2011 US bankruptcy law aimed at ensuring proper accounting of
consumers’ costs in bankruptcy.
•• On 19 October 2015, the NCUA reached a settlement agreement with Wachovia Corp, part of Wells Fargo
& Co, worth USD 53 million over losses related to the mortgage-backed securities sold to Southwest and
Members United corporate credit unions that later failed.
•• On 2 September 2015, a proposed USD 25.7 million settlement was reached in a class action lawsuit
against Wells Fargo and Wells Fargo Bank, resolving claims on behalf of all persons who had a mortgage
serviced by Wells Fargo and owed or paid a property inspection fee assessed during the period 1 August
2004 through 31 December 2013.
•• On 15 April 2015, the US District Court for the Northern District of California ruled that Wells Fargo & Co
breached a 2010 mortgage settlement and ordered it to meet with the plaintiffs and correct the violations.
The original 2010 settlement resolved complaints over Wachovia Corp’s portfolio of “pick-a-payment loans”
that Wells Fargo inherited when it acquired Wachovia in 2008. Wells Fargo denied assistance to borrowers
to prevent foreclosure and failed to scrutinize borrowers who were at risk of default for loan modifications.
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•• On 9 February 2015, the US Justice Department announced a USD 28.3 million settlement with Wells Fargo
& Co and its subsidiary Wells Fargo Bank NA to resolve claims that the mortgage servicers violated the
Service Members Civil Relief Act with non-judicial foreclosures against US service members between 2006
and 2012.
The bank agreed to take corrective remedies.
•• On 19 December 2014, the US District Court for the Southern District of New York ruled in favor of US
homeowners and ordered Wells Fargo & Co to pay them USD 54.8 million in a class action over excessive
fees in a lawsuit filed in 2001 by homeowners over alleged overcharges in mortgage loans by HomEq
Servicing, a subsidiary of Wachovia Corp, acquired by Wells Fargo in 2008.
•• On 28 November 2014, Cook County, Illinois, filed a lawsuit in the US District Court for the Northern
District of Illinois in Chicago against Wells Fargo & Co, accusing the company of targeting black, Hispanic
and female borrowers with predatory and discriminatory lending in the area, with a goal of maximizing
its profit. The lawsuit alleged that Wells Fargo’s activities affected 26,000 borrowers, eroded the county’s
property tax base, and forced the county to spend more for abandoned properties. The lawsuit also said
that damages might total USD 300 million or more.
•• On 10 June 2014, the US Appeals Court for the District of Columbia Circuit rejected Wells Fargo & Co’s
attempt to avoid litigation over government allegations of misconduct related to home mortgage loans
issued by the US Federal Housing Administration. The court said that the bank’s participation in a USD 25
billion settlement with the government over foreclosure abuses did not address the claims in the separate
civil case brought by the US Attorney’s office in Manhattan concerning the origination and underwriting
of loans.
•• On 30 December 2013, Wells Fargo & Co agreed to pay USD 541 million to Fannie Mae to settle claims
over defective home loans sold to the government controlled financier. The company settled the suit and
agreed to step up its risk and compliance game heading into 2014.
•• In December, the bank announced that it would be undergoing a two-year ethics review with the intent of
avoiding future lawsuits.
••
•• On 5 December 2013, Wells Fargo & Co was sued by the city of Los Angeles in California, US, over allega-
tion that the company engaged in mortgage discrimination that led to a loss in tax revenue since 2004.
The city alleged that the bank engaged in predatory lending practices and redlining that saddled minorities
with loans they could not afford and resulted in a disproportionately high number of foreclosures in their
neighborhoods compared to white neighborhoods. The lawsuits further claimed that the city lost hundreds
of millions of dollars in taxes due to fall in property value and spent around USD 1 billion to clean up and
protect vacant properties.
•• On 1 October 2013, the New York’s attorney general, US, said he was suing Wells Fargo & Co. (WFC) to
force compliance with terms of the settlement of the 2012 national mortgage case, which prohibit lenders
from pursuing foreclosures while negotiating loan modifications. The attorney general said in a statement
that many homeowners in the state were facing unnecessary challenges in the fight to keep their home
and WFC made no effort in complying with the requirements.
•• On 30 September 2013, Wells Fargo (WF) said it agreed to pay USD 869 million to Freddie Mac (FM) to
settle claims of potential fraud in home loans the bank sold to FM.
•• On 24 September 2013, the US District Court for the Southern District of New York denied Wells Fargo &
Co’s motion to dismiss a lawsuit filed by the US government accusing Wells Fargo of fraud. The lawsuit,
filed in October 2012, accused Wells Fargo of misleading the US Department of Housing and Urban Devel-
opment about the quality of mortgages it submitted to a government insurance program.
Interchange Litigation:
•• On 13 July 2012, Visa, MasterCard and the financial institution defendants, including Wells Fargo, signed
a memorandum of understanding with plaintiff merchants to resolve the consolidated class actions and
reached a separate settlement in principle of the consolidated individual actions with regard to the inter-
change fees associated with Visa and MasterCard payment card transactions. The settlement payments to
be made total approximately USD 6.6 billion before reductions applicable to certain merchants opting out
9. Soraron Sustainability Services 9
of the settlement. The class settlement also provided for the distribution to class merchants of 10 basis
points of default interchange across all credit rate categories for a period of eight consecutive months.
The District Court granted final approval of the settlement, which has been appealed to the Second Circuit
Court of Appeals by settlement objector merchants. Other merchants have opted out of the settlement
and are pursuing several individual actions. Several merchants have filed a motion to vacate the class
settlement.
Risky Investments and Financial Services:
•• On 7 March 2016, the US Securities and Exchange Commission (SEC) sued Wells Fargo & Co and a Rhode
Island government agency in the US District Court for the District of Rhode Island, Providence, for allegedly
misleading investors about how much money 38 Studios LLC needed to develop a video game.
•• On 1 June 2015, the St. Louis County jury in Missouri, US, awarded USD 77 million to a woman who ac-
cused Wells Fargo & Co of mismanaging the family’s trust. She sued Wells Fargo in early 2012, alleging the
bank breached its fiduciary duty by failing to fully disclose significant financial transactions that allowed
the trust to lose millions of dollars. She alleged that the funds of the trusts were wrongfully pledged as
collateral in risky business ventures.
•• On 23 December 2014, the National Credit Union Administration (NCUA) filed a lawsuit in New York
against Wells Fargo & Co, alleging that the company failed to fulfill its duties as a trustee for certain
residential mortgage-backed securities trusts worth USD 2.5 billion.
•• On 18 June 2014, investors of BlackRock Inc and Pacific Investment Management Co. sued Wells Fargo &
Co in New York State Supreme Court, US, for its role in overseeing bonds issued between 2004 and 2008.
The bank was accused of failing to force lenders and bond issuers to repurchase loans that fell short of the
quality standards described to buyers when the securities were sold.
•• On 29 May 2014, Wells Fargo & Co agreed to settle claims of 100 investors lead by the City of Farmington
Hills Employees Retirement System pension plan for USD 62.5 million. Wells Fargo was accused of mar-
keting risky products like mortgage-backed securities, causing losses to the investors.
•• On 23 May 2014, Wells Fargo & Co agreed to spend USD 83 million to settle a California shareholder class
action lawsuit from 2011 accusing it of robo-signing foreclosure documents.
•• The company will spend at least USD 36.5 million toward a new down-payment assistance program for
first-time home buyers in select cities hit hard by the foreclosure crisis, other USD 6 million for counseling
Wells Fargo borrowers and USD 24.5 million integrating various computer systems for servicing home
loans. However, the company denies the claims of wrongdoing and liability and had settled to avoid further
litigation, hence the issue could occur again.
•• On 23 August 2013, a US district judge in California revealed that he refused to shield Wells Fargo Bank
NA (WFB) from future claims over its alleged role in a USD 1 billion Ponzi Scheme, saying the bank’s USD
105 million settlement with Medical Capital Holdings Inc (MCHI) investors was not made in good faith. On
12 August 2013, the judge tossed WFB’s motion for a good faith determination as the bank did not meet
the requirements for a declaration of a good faith settlement, since it faced contract claims rather than
tort claims. The settlement rose from MCHI’s alleged Ponzi scheme that ran from 2003 to 2009.
Overdraft Fees:
On 4 April 2016, the US Supreme Court rejected Wells Fargo’s appeal of a USD 203 million settlement that
it was ordered to pay to resolve a class action lawsuit accusing it of imposing excessive overdraft fees. The
litigations were filed in the late 2000s and claimed the bank deceptively deducted money from accounts
starting with the highest-valued transactions, despite contrary presentations to customers, as part of a
tactic designed to maximize overdraft fees.
The justices left in place an October 2014 ruling by the San Francisco-based 9th US Circuit Court of Appeals,
which ruled in favor of class action plaintiffs.
Illegal sales tactics and predatory lending:
•• On 4 May 2015, the city of Los Angeles filed a complaint against Wells Fargo & Co, accusing the
bank of driving its employees to open unauthorized customer accounts, charging them fees and
damaging their credit. The company allegedly encouraged its employees to engage in unfair, un-
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lawful and fraudulent conduct through a pervasive culture of high-pressure sales. In addition, the
complaint claimed that Wells Fargo employees violated state and federal laws by misusing con-
fidential information and by failing to notify customers when their personal data were breached.
Wells Fargo has blamed the problems on a few “rogue” employees, who the bank says it has “appropriately
disciplined” or fired. However, the city’s investigation found only token efforts by the bank to prevent
customer abuses.
•• On 30 November 2015, the US Office of the Comptroller of the Currency (OCC) and the San Francis-
co Federal Reserve (SFFR) launched investigations into Wells Fargo over concerns that it employed a
high-pressure sales system that would encourage illegal behavior by employees who were forced to accept
strict sales quotas fearing retribution from their superiors.
•• On 18 December 2014, the US District Court of the Central District of California tentatively rejected a bid
filed by Wells Fargo & Co trying to force a gift card purchaser to arbitrate class action claims of deceptive
marketing. The lawsuit was originally filed in July 2010, alleging that advertisements for Visa gift cards led
customers to believe that they could be used like regular Visa debit cards. The company was accused of
committing unfair and deceptive business practices, in violation of California’s Consumer Legal Remedies
Act, and engaging in unfair competition under the state’s business code.
Employee Fraud and Insider Trading Cases:
•• On 16 May 2016, Wells Fargo Advisors LLC, the brokerage arm of Wells Fargo & Co, was ordered by an
arbitration panel to pay a unit of UBS Group AG USD 1.1 million to resolve a multi-year dispute over a
financial adviser accused of taking confidential account information before leaving the UBS. It was alleged
that the employee’s compensation at Wells Fargo was tied to the successful transfer of UBS’s clients to
Wells Fargo.
•• On 2 November 2015, the US Securities and Exchange Commission (SEC) filed a lawsuit in the US District
Court for the District of Massachusetts against a former Wells Fargo & Co analyst, alleging that she
engaged in an insider trading scheme that enabled her boyfriend to make over USD 220,000.
•• On 17 December 2013, a former vice-president of Wells Fargo Advisors LLC, a subsidiary of Wells Fargo
& Co was sentenced to 20 months in prison, a three-year period of supervised release, and ordered to pay
USD 360,199 in restitution for a wire fraud offense. He elaborated a wire fraud over a USD 1.8 million
check fraud scheme that cheated an elderly widowed client. The bank was not accused of wrongdoing. In
March 2013, the former employee repaid USD 650,000 to the client and agreed to be banned from the
securities industry as part of a settlement with the US Financial Industry Regulatory Authority.
•• On 29 September 2014, the US Securities and Exchange Commission (SEC) announced that it charged two
former Wells Fargo & Co employees, a research analyst and a trader, with insider trading that generated
USD 117,000 in profits when they, on at least six occasions, traded on before the release of reports that
altered the stock’s value.
•• On 30 March 2015, one of them settled the matter and the other one was taken to trial. Wells Fargo has
agreed to place an amount equal to the alleged profits reaped in its principal account aside for possible
future disgorgement.
•• On 13 February 2015, a former investment banker of Wells Fargo & Co and three of his conspirators were
sentenced in the US District Court for the Western District of North Carolina for insider trading. The former
banker was sentenced to five years in prison and two years of supervised release. According to the hearing,
between March 2010 and December 2012, the conspirators conducted insider trading activities based on
non-public information regarding upcoming mergers and acquisitions stolen by the investment banker.
•• On 22 September 2014, the US Securities and Exchange Commission (SEC) accused Wells Fargo Advisors
LLC, a subsidiary of Wells Fargo & Co, of failing to prevent one of its brokers from insider trading based on
a customer’s non-public information. The SEC also accused Wells Fargo of refusing to provide important
documents during its investigation and providing a transformed document related to the broker’s trading.
Wells Fargo admitted to the charges and agreed to pay USD 5 million to settle the SEC case.
Wells Fargo acknowledged its violation and agreed to retain an independent consultant to review its policies
and procedures.
11. Soraron Sustainability Services 11
Responsible Investment:
•• On 10 December 2014, the Environmental Paper Network and BankTrack sent letters to 26 banks, includ-
ing Wells Fargo, to express concerns regarding large scale deforestation and social conflicts caused by
Asia Pacific Resources International Ltd (APRIL) and other companies’ violation of Indonesian law, Chinese
banking regulations and APRIL’s own Sustainable Forest Management Policy. The banks invested at least
USD 1.5 billion in APRIL.
•• On 29 October 2014, BankTrack released a new coal financing report revealing that 92 leading banks
provided at least EUR 66 billion in financing the coal industry.
Following the report, at the end of 2014, Wells Fargo had pledged to move away from financing such projects.
Deficient Governance:
•• On 13 May 2016, Wells Fargo & Co was facing a whistleblower lawsuit filed by a Damascus man who
claimed he was terminated in 2014 after he discovered the bank was repeatedly collecting on mortgage
loans for which it did not have the proper documentation. When he complained about the practice, he was
allegedly told to lie to customers. He resisted, hence the bank fired him in November 2014.
•• On 13 April 2016, US federal regulators said five out of the eight biggest US banks do not have credible
plans to operate without relying on taxpayer money in case of a bankruptcy and gave them until 1 October
to make amends or risk sanctions. Wells Fargo was found short on governance and operational level, due
to a deficient planning, which put into question if the bank could execute its “living will.”
•• In June 2015, a former customer service specialist sued Wells Fargo & Co in the US District Court for the
District of Oregon, Portland. The lawsuit accused Wells of instructing workers at a call center to refrain
from telling customers about lost deeds or other missing documents and of firing him after calling the
policy unethical. The plaintiff sought damages and an injunction.
Anti-Money Laundering Matters:
•• In December 2015, the US Treasury’s Office of the Comptroller of the Currency (OCC) issued a “consent
cease and desist order” against Wells Fargo for “deficiencies in an internal control pillar” of the bank’s
anti-money laundering (AML) compliance program tied to the “wholesale banking group.” According to
OCC, Wells Fargo “failed to make acceptable substantial progress toward correcting previously identi-
fied” AML problems that were brought to its attention relating to “due diligence practices and customer
risk assessment” in the wholesale group in prior exams. The OCC stated that the wholesale group’s risk
assessment initiatives were “not effective,” its customer due diligence practices were “unsatisfactory,”
relationship staff and front-line monitoring efforts were not satisfactory and the unit had lax governance
and oversight practices.
•• On 18 December 2014, the US Financial Industry Regulatory Authority (FINRA) announced that it fined
Wells Fargo Advisors and Wells Fargo Advisors Financial Network, subsidiaries of Wells Fargo & Co, USD
1.5 million for failing to comply with anti-money laundering regulations.
Privacy violations:
•• On 29 March 2016, Wells Fargo & Co agreed to pay USD 8.5 million to the state of California and five of
the state’s counties to settle claims that it was too slow to notify its California customers that they were
being recorded.
The settlement requires Wells to establish procedures to ensure compliance, and appoint a supervisor to
oversee those measures. In addition, Wells Fargo agreed to contribute a total of USD 500,000 to the Privacy
Rights Clearinghouse and the Consumer Protection Prosecution Trust Fund.
12. Soraron Sustainability Services 12
Sources used:
•• Annual Report 2015
•• Corporate Social Responsibility Report 2015
•• Company’s website
•• Press search - links to the most relevant controversies:
•• Wells Fargo: admits deception in $1.2 billion US mortgage accord - http://www.4-traders.com/WELLS-
FARGO-CO-14861/news/Wells-Fargo-admits-deception-in-1-2-billion-US-mortgage-accord-22144990/
•• Wells Fargo: U.S. top court rejects Wells Fargo challenge to $203 million class action judgment - http://
www.4-traders.com/WELLS-FARGO-CO-14861/news/Wells-Fargo-U-S-top-court-rejects-Wells-Fargo-
challenge-to-203-million-class-action-judgment-22116775/
•• OCC: WELLS FARGO MUST BOLSTER AML RISK ASSESSMENT, CDD PROCESSES TIED TO WHOLESALE
BANKING GROUP - http://www.acfcs.org/occ-wells-fargo-must-bolster-risk-assessment-cdd-process-tied-
to-wholesale-banking-group/
•• Wells Fargo to pay $81.6 million to bankrupt U.S. homeowners: DOJ - http://www.reuters.com/article/us-
wells-far-housing-idUSKCN0SU2CQ20151105
•• UPDATE 1-Lawsuit accuses Wells Fargo of biased lending in Chicago area - http://www.reuters.com/article/
wellsfargo-chicago-lawsuit-idUSL2N0TJ00Z20141129
•• Wells Fargo agrees to $541 million loan settlement - http://www.reuters.com/article/us-wellsfargo-fannie-
mae-idUSBRE9BT0F420131230
•• Wells Settles with Freddie for $869 Million - http://www.wsj.com/articles/SB1000142405270230391880
4579107863259245836
•• $105M MedCap Settlement Doesn’t Protect Wells Fargo - http://www.law360.com/health/articles/467429/-
105m-medcap-settlement-doesn-t-protect-wells-fargo-
•• Los Angeles sues Wells Fargo, alleging fraud by employees - http://www.foxnews.com/us/2015/05/06/
los-angeles-sues-wells-fargo-alleging-fraud-by-employees.html
•• Former Wells Fargo Investment Banker and Three Conspirators Sentenced for Insider Trading Conspiracy -
https://www.fbi.gov/charlotte/press-releases/2015/former-wells-fargo-investment-banker-and-three-con-
spirators-sentenced-for-insider-trading-conspiracy
•• Wells Fargo: Whistleblower claims Wells Fargo misled borrowers, government - http://www.4-traders.com/
WELLS-FARGO-CO-14861/news/Wells-Fargo-Whistleblower-claims-Wells-Fargo-misled-borrowers-gov-
ernment-22359123/
•• Wells Fargo: Loses Long-Running Broker Dispute with UBS - http://www.4-traders.com/WELLS-FARGO-
CO-14861/news/Wells-Fargo-Loses-Long-Running-Broker-Dispute-With-UBS-22368772/
•• U.S. regulators find deficiencies in ‘living wills’ of big banks - http://www.4-traders.com/BANK-OF-AMERI-
CA-CORP-11751/news/U-S-regulators-find-deficiencies-in-living-wills-of-big-banks-22167081/
•• OCC: WELLS FARGO MUST BOLSTER AML RISK ASSESSMENT, CDD PROCESSES TIED TO WHOLESALE
BANKING GROUP - http://www.acfcs.org/occ-wells-fargo-must-bolster-risk-assessment-cdd-process-tied-
to-wholesale-banking-group/
•• Wells Fargo: to pay $8.5 million for California privacy violations - http://www.4-traders.com/WELLS-FAR-
GO-CO-14861/news/Wells-Fargo-to-pay-8-5-million-for-California-privacy-violations-22087103/
Military involvement:
http://www.dontbankonthebomb.com/hall-of-shame-2015-w/#toggle-wells-fargo-united-states
