U.S. regulators recently charged 11 Wall Street firms with violations that carry a combined $549 million in penalties for failing to maintain electronic records of employee communications, but a critic of white collar crime enforcement says that amount is ‘a drop in the bucket for banksters guilty of wrecking the American economy.’
The Securities and Exchange Commission (SEC) announced charges and $289 million in fines against 11 firms for “widespread and longstanding failures” in record-keeping, while the Commodity Futures Trading Commission said it fined four banks a total of $260 million for failing to maintain records required by the agency.
The SEC charges included allegations that the Wall Street firms allowed employees to use unsupervised side channels such as messaging apps WhatsApp and Signal.
Wells Fargo Securities, LLC together with Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC agreed to pay a $125 million penalty, but at least one critic noted that federal regulators fined the company a record $1.7 billion less than a year ago for “widespread mismanagement” over multiple years that harmed over 16 million consumer accounts.
The Consumer Financial Protection Bureau said the company repeatedly misapplied loan payments, wrongfully foreclosed on homes and illegally repossessed vehicles, incorrectly assessed fees and interest, charged surprise overdraft fees, along with other illegal activity affecting over 16 million consumer accounts
New Jersey consumer advocate Lisa McCormick said the latest charges show that previous settlements reached with the nation’s fourth-largest bank have not made the giant multinational financial services company a law abiding corporate citizen.
“If corrupt financial institutions count fines as part of the cost of doing business, then a $1.9 trillion concern like Wells Fargo is just going to continue breaking the law,” said McCormick, who added that Wells Fargo has not been dissuaded by previous fines from embezzling, money laundering, gouging consumers, fraud, or other illegally activity, which is why she has called for a ‘corporate death penalty’ that would disolve or allow the government to take over businesses that engage in unlawful or unscrupulous behavior.
“I am once again astounded by the injustice of America’s securities fraud system,” said McCormick. “Judicial dissolution, or the corporate death penalty, a legal procedure in which a corporation is forced to dissolve or cease to exist, is a more appropriate penalty for serious white-collar crimes.”
“Monetary fines did not rehabilitate Wells Fargo after it perpetrated one of the largest embezzlements in history, steered African Americans and Hispanics into high-cost subprime loans, failed to monitor and report suspected money laundering by narcotics traffickers, gouged consumers with excessive overdraft fees on checking-account customers, fraudulently engaged in improper foreclosure practices during the mortgage crisis,” said McCormick.
“Wells Fargo sold risky mortgage-backed securities without fully realizing their dangers, violated the False Claims Act by underwriting 60,000 Federal Housing Administration (FHA) backed loans for applicants that did not qualify, inflated premiums on forced-place insurance, illegally taken an interest in the homes of borrowers in exchange for opening credit card accounts for them, and it continued breaking the lae after more fines were imposed,” said McCormick.
“Wells Fargo also discriminated in hiring against 34,193 African Americans, gave a stock trader insider information, opened over 1.5 million checking and savings accounts and 500,000 credit cards on behalf of customers without their consent, overcharged hundreds of thousands of homeowners for appraisals ordered after they defaulted on their mortgage loans, failed to store electronic documents in a format that makes them impossible to alter or destroy, and then it discriminated against female executives,” said McCormick.
McCormick said Wells Fargo also invested its clients’ funds in for-profit private prisons, helped two of the biggest firearms and ammunition companies obtain $431.1 million in loans as it handled banking for the National Rifle Association of America (NRA), and financed the environmentally destructive Dakota Access Pipeline.
The company paid disgraced executive John Stumpf 473 times more than the median employee, ranking among the worst S&P 500 companies for CEO—employee pay inequality, then paid Charles W. Scharf, the third chief executive officer at Wells Fargo in as many years, $24.5 million for 2021, or 324 times the median employee’s pay.
“Compliance with the books and records requirements of the federal securities laws is essential to investor protection and well-functioning markets. To date, the Commission has brought 30 enforcement actions and ordered over $1.5 billion in penalties to drive this foundational message home. And while some broker-dealers and investment advisers have heeded this message, self-reported violations, or improved internal policies and procedures, today’s actions remind us that many still have not,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.
“So here are three takeaways for those firms who haven’t yet done so: self-report, cooperate and remediate. If you adopt that playbook, you’ll have a better outcome than if you wait for us to come calling,” said Grewal, a former New Jersey attorney general.
“Today’s actions stem from our continuing sweep to ensure that regulated entities, including broker-dealers and investment advisers, comply with their recordkeeping requirements, which are essential for us to monitor and enforce compliance with the federal securities laws. Recordkeeping failures such as those here undermine our ability to exercise effective regulatory oversight, often at the expense of investors,” said Sanjay Wadhwa, Deputy Director of Enforcement.
“The 11 firms settling today have acknowledged that their conduct violated the law regarding these crucial requirements, and are implementing measures to prevent future similar violations. However, we know that other SEC-regulated entities have committed similar violations, and so our work to enforce industry-wide compliance continues,” said Wadhwa.
The SEC’s investigation uncovered pervasive and longstanding “off-channel” communications at all 11 firms.
As described in the SEC’s orders, the firms admitted that from at least 2019, their employees often communicated through various messaging platforms on their personal devices, including iMessage, WhatsApp, and Signal, about the business of their employers. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of federal securities laws.
By failing to maintain and preserve required records, certain of the firms likely deprived the Commission of these off-channel communications in various SEC investigations.
The failures involved employees at multiple levels of authority, including supervisors and senior executives.
Each of the broker-dealers was charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing to reasonably supervise with a view to preventing and detecting those violations.
Wedbush Securities Inc., a dually registered broker-dealer and investment adviser, was additionally charged with violating certain recordkeeping provisions of the Investment Advisers Act of 1940 and with failing to reasonably supervise with a view to preventing and detecting those violations.
In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured.
The firms also agreed to retain independent compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their employees with those policies and procedures.
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