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The Price of Wells Fargo’s Fake Account Scandal Grows by $3 Billion

The bank reached a settlement with federal prosecutors and the Securities and Exchange Commission after abusing customers.

Wells Fargo used fraud to open up fake accounts and force customers into services that they did not need.Credit...Jeenah Moon for The New York Times

Wells Fargo has agreed to pay $3 billion to settle criminal charges and a civil action stemming from its widespread mistreatment of customers in its community bank over a 14-year period, the Justice Department announced on Friday.

From 2002 to 2016, employees used fraud to meet impossible sales goals. They opened millions of accounts in customers’ names without their knowledge, signed unwitting account holders up for credit cards and bill payment programs, created fake personal identification numbers, forged signatures and even secretly transferred customers’ money.

In court papers, prosecutors described a pressure-cooker environment at the bank, where low-level employees were squeezed tighter and tighter each year by sales goals that senior executives methodically raised, ignoring signs that they were unrealistic. The few employees and managers who did meet sales goals — by any means — were held up as examples for the rest of the work force to follow.

“This case illustrates a complete failure of leadership at multiple levels within the bank,” Nick Hanna, U.S. attorney for the Central District of California, said in a statement. “Wells Fargo traded its hard-earned reputation for short-term profits, and harmed untold numbers of customers along the way.”

Now the bank is grappling with the lingering consequences. Part of Friday’s deal, which includes a settlement with the Securities and Exchange Commission, is a deferred prosecution agreement, a pact that could expose the bank to charges if it engages in new criminal activity.

“We are committing all necessary resources to ensure that nothing like this happens again,” Wells Fargo’s chief executive, Charles W. Scharf, said in a statement on Friday.

As part of its agreement with the S.E.C., the bank will set up a $500 million fund to compensate investors who suffered when Wells Fargo failed to inform them that its community banking business was not as strong as the fake accounts made it seem. The money is included in the $3 billion settlement total.

During the final five years of abuse, the bank quietly fired thousands of employees for falsifying records in response to customer complaints, according to court filings, and disciplined tens of thousands more.

In the filings, prosecutors described how, even after some Wells Fargo executives tried to curb the sales abuses, the bank hid the problem from investors by changing its public descriptions of its sales practices over several years. The intent was to be clearer about the limitations of the bank’s strategy, known as “cross-selling,” without tipping investors off to the problems that senior executives had uncovered, the filings said.

The practices covered by the settlement — which includes an admission by Wells Fargo that it falsified banking records and harmed customers’ credit ratings — are not the only misbehavior the bank has revealed since 2016. Since the allegations came to light in a settlement with California authorities and the Consumer Financial Protection Bureau, the bank has also admitted it charged mortgage customers unnecessary fees and forced auto loan borrowers to buy insurance they did not need.

The mortgage and auto loan claims are not part of Friday’s deal, and Justice Department officials declined to comment on whether they intended to take more action against the bank. They said the settlement also did not include similar conduct that fell outside the 14-year period.

Wells Fargo is still under investigation by the Consumer Financial Protection Bureau for abruptly closing customers’ accounts, and has said in regulatory filings that the authorities are looking into improper fees it charged wealth management customers.

Friday’s deal is also unrelated to a continuing criminal investigation of former Wells Fargo executives’ individual roles in the sales practices scandal. On Jan. 23, the Office of the Comptroller of the Currency fined former top executives millions of dollars each for overseeing the bank while it abused customers. A former Wells Fargo chief executive, John G. Stumpf, agreed to pay $17.5 million. Carrie L. Tolstedt, Wells Fargo’s former head of retail banking, is contesting a $25 million fine.

Ms. Tolstedt was described by title, but not by name, in the court papers filed by the Justice Department as part of Friday’s settlement. She appeared as “Executive A,” who the filings said was the “senior executive vice president in charge of the community bank” from 2007 to 2016, a position Ms. Tolstedt held during that time.

According to the papers, Executive A ignored concerns that other executives raised about cross-selling, lied to regulators and Wells Fargo’s board, and tightly controlled the bank’s public disclosures.

In 2015, the bank developed a new way to calculate the volume of accounts it was opening for customers, noting whether the accounts were used or simply sat dormant. But it never released the figures produced by this new method, “in part because of concerns raised by Executive A and others that its release would cause investors to ask questions about Wells Fargo’s historical sales practices.”

“Ms. Tolstedt acted appropriately and in good faith at all times, and the effort to scapegoat her is both unfair and unfounded,” her lawyer Enu Mainigi said in an email to The New York Times.

Friday’s $3 billion penalty, while large, is not record breaking. In 2015, a judge ordered BNP Paribas to pay nearly $9 billion for sanctions violations. Friday’s fine is not even the largest against Wells Fargo. In 2012, when the country’s five largest banks paid a total of $26 billion to state and federal authorities to settle investigations into their mortgage lending practices in the years leading up to the 2008 financial crisis, Wells Fargo’s portion was $5.35 billion. Including Friday’s penalty, the bank has paid more than $18 billion in fines for misconduct since the financial crisis.

Senior Justice Department officials told journalists in a briefing on Friday that the bank’s payments to other authorities, including $1 billion in fines to the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau in 2018, were a mitigating factor in determining how much it would owe in the current settlement.

Wells Fargo’s profits last year totaled nearly $20 billion.

In early 2018, the Federal Reserve imposed growth restrictions on Wells Fargo that will be lifted only after the bank has shown its regulators that it has made significant changes to prevent bad behavior like the fake account scandal. Since taking over in October, Mr. Scharf has not offered any hints about when that goal might be accomplished.

Stacy Cowley contributed reporting.

Emily Flitter covers banking and Wall Street. Before joining The Times in 2017, she spent eight years at Reuters, writing about politics, financial crimes and the environment. More about Emily Flitter

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: Wells Fargo to Pay $3 Billion In Fraud-Actions Settlement. Order Reprints | Today’s Paper | Subscribe

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