Wells Fargo to Pay $ 72.6 Million for Foreign Exchange Fraud | Item


Under the settlement agreement, approved Monday by U.S. District Judge John Koeltl for the Southern District of New York City, Wells Fargo will pay approximately $ 35.3 million in restitution to customers it defrauded and approximately 37, $ 3 million in civil penalties under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) and as asset forfeiture.

A whistleblower brought the matter to the government’s attention by filing a confidential statement with the Justice Department under FIRREA.

Foreign exchange services offered by Wells Fargo included converting customers’ US dollars into foreign currency for outgoing wire transfers and converting incoming wire transfers from foreign currencies to U.S. dollars.

As alleged in the government complaint, from 2010 to 2017, Wells Fargo FX sales specialists defrauded 771 commercial clients, including many small and medium-sized businesses and federally insured financial institutions, by “hitting the prices of currencies that they were selling and lowering the prices of the currencies that they bought from customers for their outgoing and inbound wire transfers. “

Wells Fargo employees have referred to this practice internally as a “spread” or “sales margin.”

As a result of the misconduct, “Wells Fargo received millions of dollars from customers the bank was not entitled to,” the complaint states. As part of the settlement, Wells Fargo admitted and accepted responsibility for much of the conduct alleged in the government complaint, including the specific schemes described below.

“Big numbers round”: FX sales specialists would change numbers in the price of transactions to cost clients more money. “For example, if the hypothetical correct price to buy a euro was $ 1.0123, an FX sales specialist would use the big figure trick to bring the price down to $ 1.0213, thus taking more margin. . of the client, “the government explained. If caught, the FX Sales Specialist would claim the numbers were incorrectly adjusted.

“User-based pricing”: FX sales specialists “billed the same clients for different spreads depending on the client representative involved in executing the deal,” according to the government. Larger spreads would be charged on trades requested by representatives “thought to be less sophisticated or experienced in currency trading”.

‘BSwift Piñata’: Wells Fargo generally did not immediately notify customers when they received incoming foreign currency transfers, known as “BSwifts,” or when those transfers were converted. As a result, “the FX sales specialist could wait until the end of the day and pick the best rate for the bank and the worst rate for the client of the entire trading day,” according to the complaint.

Incitement to wrongdoing: FX sales specialists had their bonuses tied exclusively to income generated from FX transactions, according to the complaint. “Specifically, prior to 2017, Wells Fargo paid bonuses to FX Sales Specialists based on the percentage of FX Sales Revenue generated by each FX Sales Specialist and FX Office.” This resulted in hundreds of thousands of dollars in bonuses to various FX sales specialists, some of whom received bonuses exceeding $ 1 million in a single year, according to the complaint.

Compliance failures: Wells Fargo “has not put in place meaningful or effective safeguards” to ensure that currency sales specialists do not engage in illegal practices, government says. For example, Wells Fargo “had no meaningful or effective policy or procedure governing how fixed price agreements should be negotiated, commemorated, recorded or implemented.” Nor did it have a “meaningful or effective process to systematically monitor the existence or terms of fixed price agreements.”

In addition, the bank did not provide any training for foreign exchange sales specialists; had no systemic process in place to verify whether specialists were pricing transactions in a manner that was consistent with fixed price agreements; has not put in place electronic guarantees to prevent specialists from pricing transactions in a way that departs from fixed price agreements; and did not conduct any audits or reviews of transactions to determine whether prices matched fixed price agreements until 2017, the complaint says.

Toxic culture: Specialists in currency sales “openly joked and celebrated taking advantage of the bank’s customers,” according to the government. For example, some scholars “would use phrases like ‘back the truck’ and ‘if in doubt lay them out’ to jokingly describe how Wells Fargo and its currency sales people made big bucks at the expense of customers in the world. the bank. . “

According to the settlement documents, Wells Fargo claimed that as of 2017, it improved its foreign exchange policies and practices and took unfavorable employment action against more than 20 employees involved in the foreign exchange business, including various disciplinary measures and dismissals.

“This past behavior was unacceptable,” Wells Fargo said in a statement. “Since then, Wells Fargo has paid approximately $ 35 million to fully remedy affected customers and has thoroughly reviewed our foreign exchange pricing practices and procedures. We have significantly improved our business policies, procedures and oversight related to the management and pricing of foreign exchange transactions. We remain committed to meeting the needs of our FX clients.

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