Earlier this year, Wells Fargo revealed that it had set aside more than $3 billion to pay for a looming settlement over the bank’s fake account scandal, and now, the other shoe has dropped.

The Department of Justice and Securities Exchange Commission announced Friday afternoon that Wells Fargo will pay $3 billion to settle three separate investigations into the bank’s practices that led to 5,000 Wells Fargo employees opening two million fake accounts in order to receive sales bonuses.

The settlements cover criminal and civil investigations by the DOJ and separate allegations from the SEC that the bank misled its investors by claiming the success of its cross-selling strategy, wherein employees were incentivized to open multiple accounts for the same customer.

But the scheme blew up back in 2016 when the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the city and county of Los Angeles fined the bank $185 million for the bank’s employees opening up fake accounts in customers’ names.

The bank later inked a $142 million settlement with the affected customers, and a $480 million settlement with a group of shareholders who accused the bank of making “certain misstatements and omissions” in the company’s disclosures about its sales practices.

But now, the bank is set to pay out another $3 billion to settle the DOJ and SEC investigations.

“This case illustrates a complete failure of leadership at multiple levels within the bank. Simply put, Wells Fargo traded its hard-earned reputation for short-term profits, and harmed untold numbers of customers along the way,” said United States Attorney Nick Hanna. “We are hopeful that this $3 billion penalty, along with the personnel and structural changes at the bank, will ensure that such conduct will not reoccur.”

The DOJ lays out the depth of the problem at Wells Fargo and how long the company was aware of the issue before it became public knowledge.

“The Community Bank implemented a volume-based sales model in which employees were directed and pressured to sell large volumes of products to existing customers, often with little regard to actual customer need or expected use,” the DOJ said in a statement. “The Community Bank’s onerous sales goals and accompanying management pressure led thousands of its employees to engage in unlawful conduct – including fraud, identity theft and the falsification of bank records – and unethical practices to sell products of no or little value to the customer.”

That conduct included opening “open checking and savings, debit card, credit card, bill pay and global remittance accounts,” all without customers’ consent.

According to the DOJ, the “top managers” of the community bank were aware of the “unlawful and unethical gaming practices as early as 2002, and they knew that the conduct was increasing due to onerous sales goals and pressure from management to meet these goals.”

But despite knowing that the fake account creation was a growing problem, the community bank’s senior leaders “failed to take sufficient action to prevent and reduce the incidence of such practices.”

In the wake of the scheme first being uncovered, the bank’s CEO and chairman, John Stumpf, promptly resigned from his positions. From there, the bank took additional action to address the issues that led to the fines, including revoking 2016 bonuses for its top executives, firing four senior managers, outing another two executives, and splitting the role of chairman and CEO. 

Beyond that, the bank clawed back more than $100 million in bonuses from Stumpf and former head of community banking Carrie Tolstedt, both of whom could have put a stop to the fake account creation pipeline.

But Stumpf was recently fined $17.5 million by the OCC for his role in the scandal, while Tolstedt was charged by the OCC for her actions. According to the OCC, it is seeking a fine of $25 million against Tolstedt for her actions, or lack thereof, to prevent the fake account scandal from spreading.

The bank later prepared a new pay plan where employee compensation was no longer tied to sales.

And now, the scandal has led to a $3 billion settlement with the government.

According to the DOJ, the government’s decision to enter into the deferred prosecution agreement and civil settlement was based on a number of factors, including “Wells Fargo’s extensive cooperation and substantial assistance with the government’s investigations; Wells Fargo’s admission of wrongdoing; its continued cooperation with investigators; its prior settlements in a series of regulatory and civil actions; and remedial actions, including significant changes in Wells Fargo’s management and its board of directors, an enhanced compliance program, and significant work to identify and compensate customers who may have been victims.”

Meanwhile, the SEC section of the settlement is $500 million, all of which will be returned to investors in the bank who were misled by Wells Fargo.

“Wells Fargo repeatedly misled investors, including through a misleading performance metric, about what it claimed to be the cornerstone of its Community Bank business model and its ability to grow revenue and earnings,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement. “This settlement holds Wells Fargo responsible for its fraud and furthers the SEC’s goal of returning funds to harmed investors.”

The SEC’s order finds that Wells Fargo violated the antifraud provisions of the Securities Exchange Act of 1934. As part of the settlement, Wells Fargo has “agreed to cease and desist from committing or causing any future violations of these provisions” and to pay a civil penalty of $500 million, which will be distributed to investors.

That’s in addition to the $480 million settlement the bank reached with investors back in 2018.

“The conduct at the core of today’s settlements — and the past culture that gave rise to it — are reprehensible and wholly inconsistent with the values on which Wells Fargo was built,” Wells Fargo CEO Charlie Scharf said in a statement.

“Our customers, shareholders and employees deserved more from the leadership of this company. Over the past three years, we’ve made fundamental changes to our business model, compensation programs, leadership and governance,” Scharf continued. “While today’s announcement is a significant step in bringing this chapter to a close, there’s still more work we must do to rebuild the trust we lost. We are committing all necessary resources to ensure that nothing like this happens again, while also driving Wells Fargo forward.”

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