Former Wells Fargo Senior Exec Settles Fraud Charges With SEC

The Securities and Exchange Commission (SEC) on Tuesday announced a more than $4 million settlement with the former head of Wells Fargo & Co.’s Community Bank. The settlement is subject to court approval.

Carrie L. Tolstedt has agreed to pay the penalty plus additional amounts, which stems from charges brought in 2020 over her role in misleading investors about the success of the Community Bank, Wells Fargo’s core business, the SEC said.

The SEC has previously settled related charges against San Francisco-based Wells Fargo and John Stumpf, its former CEO and chairman.

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

The complaint, which was filed in the U.S. District Court for the Northern District of California, further alleges that Tolstedt knew the cross-sell metric did not accurately track accounts or products that customers needed or used, since she was aware of misconduct at the Community Bank that led to bankers pushing products on customers they did not need or want, including the unauthorized opening of accounts. 

The SEC alleges that Tolstedt made misleading public statements to investors at Wells Fargo’s investor conferences in both 2014 and 2016, and signed misleading sub-certifications as to the accuracy of Wells Fargo’s public disclosures when she knew, or was reckless in not knowing, that statements in those disclosures about the cross-sell metric were materially false and misleading.

“Companies do not act on their own,” said Monique C. Winkler, regional director of the SEC’s San Francisco Regional Office. “Where the facts warrant it, we will hold senior executives accountable for conduct that violates the securities laws.”

Tolstedt did not admit to nor deny the allegations, but agreed to a final judgment permanently enjoining her from violating, or aiding and abetting violations of, the anti-fraud and other provisions of federal securities laws. She is also permanently barred from serving as an officer or director. 

In addition to the $3 million civil penalty, Tolstedt agreed to pay disgorgement of $1.46 million, plus prejudgment interest of $447,874, the SEC said.

The commission said it will combine the money with $500 million paid by Wells Fargo and a $2.5 million penalty paid by Stumpf in previous settlements and distribute the sum to harmed investors.

In addition to this civil penalty, Tolstedt in March agreed to plead guilty in criminal court to one count of obstruction of a bank examination. Her plea agreement calls for a sentence of up to 16 months in prison.

The Office of the Comptroller of the Currency (OCC), which also investigated misconduct at Wells Fargo, also reached a resolution with Tolstedt in a regulatory proceeding in March. As part of the consent order resolving that matter, Tolstedt agreed to a ban from working in the banking industry and to pay a $17 million civil penalty.