WFC Wells Fargo and Company

By Ben Eisen 

Wells Fargo & Co. will pay $3 billion to settle investigations by the Justice Department and the Securities and Exchange Commission over its long-running fake-account problems, the latest chapter in an extraordinary scandal for one of the country's largest banks.

The deal resolves civil and criminal investigations. It includes a so-called deferred prosecution agreement, where the Justice Department files, but doesn't immediately pursue, criminal charges. It will eventually dismiss them if the bank satisfies the government's requirements, including its continued cooperation with further government investigations, over the next three years.

The scandal has severely damaged the bank's reputation as well as its regulatory relationships. Regulators fined the bank in 2016 for creating fake and unauthorized checking and savings accounts, a revelation that outraged lawmakers and customers.

Friday's settlement shuts the door on a major portion of the bank's legal problems related to the fake accounts, a scandal that has claimed two CEOs. It is a victory for Charles Scharf, an outsider who took over as chief executive in October and was tasked with fixing the crisis.

The bank, though, still faces major regulatory problems. Most notably, it is under sanction by the Federal Reserve, which has taken the unusual step of capping the bank's growth. Settling with the Justice Department and SEC could allow the bank to focus on persuading the Fed to lift the cap.

Regulators and prosecutors could also still take action against individual former executives, according to people familiar with the situation. Last month, the Office of the Comptroller of the Currency charged eight former Wells Fargo executives over the fake-account scandal, including a former CEO.

As part of the settlement, Wells Fargo admitted that it "unlawfully misused customers' sensitive personal information" and harmed some customers' credit ratings, collecting millions of dollars of fees and interest in the process.

Wells Fargo for years enjoyed a reputation as a folksy industry darling that catered to Main Street customers. But that reputation was left in tatters after the sales scandal became public.

Prosecutors said the practices date to 1998, when Wells Fargo began to rely more heavily on sales growth. It pressured employees to sell additional products to current customers, a practice known as cross-selling.

The heightened pressure pushed many employees to undertake illegal practices, such as opening checking and savings accounts without customer knowledge and making up identification numbers to activate unauthorized debit cards. Sometimes employees forged customer signatures to open accounts or altered customers' contact information to prevent them from learning about unauthorized accounts, the government said.

Regulators and prosecutors said top managers knew of these issues in 2002. In 2004, an internal investigator called it a "growing plague."

After the scandal erupted in 2016, the bank's top executives faced heavy criticism for blaming lower-level employees. An investigation by the board of directors later found that the bank's decentralized structure allowed top executives to avoid addressing these issues as they got bigger.

The bank has struggled to recover since then. What was once a fast-growing lender whose profits towered above those of rivals has become a firm with declining revenue that is leaning heavily on cost cuts.

--Rachel Louise Ensign, Aruna Viswanatha and Dave Michaels contributed to this article.

Write to Ben Eisen at ben.eisen@wsj.com

(END) Dow Jones Newswires

February 21, 2020 16:25 ET (21:25 GMT)

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