State nixes business with Wells Fargo after fraud uncovered

SHARE State nixes business with Wells Fargo after fraud uncovered

Illinois State Treasurer Michael Frerichs on Monday announced plans to suspend billions of dollars in investment activity with Wells Fargo. | Santiago Covarrubias/Sun-Times

After recent revelations that Wells Fargo had defrauded unsuspecting customers, the state of Illinois will suspend investment activity with the financial services firm — investments that totaled $30 billion last year alone.

State Treasurer Michael Frerichs announced that move Monday morning and placed a one-year moratorium on using Wells Fargo as an investment broker. Illinois follows California, which issued a similar decree against the firm last week.

Wells Fargo earns a cut of each investment transaction it brokers for the state. The percentage is not disclosed to state officials. “I wouldn’t say it’s tens of millions of dollars . . . but millions of dollars,” Frerichs said of the money Wells Fargo made last year off the deals.

“We asked them” how much they made off Illinois accounts, deputy treasurer Jay Rowell said, noting that Frerich’s office had been in touch with two Wells Fargo executives to share news of the moratorium. “But we’re not doing business with them anymore so I’m not sure they’re going to get back to us on that issue.”

Wells Fargo spokeswoman Trina Shepherd issued this statement Monday evening: “Respectfully, the actual amount in lost revenue for the company from business conducted with the Illinois Treasurer’s office is approximately $50,000 per year.”

The $30 billion in state investments — a fraction of the approximately $1 trillion Illinois invests annually — will go to other institutions the state does business with, Frerichs said.

The fraud scandal that caused Frerichs to act also resulted in $185 million in fines levied last month by federal regulators. The scheme was carried out by Wells Fargo employees who, under pressure to reach performance goals, fraudulently opened about 2 million unauthorized deposit, credit card, debit card, and online banking accounts for customers from 2011 to 2015 that extracted millions of dollars in fraudulent fees.

“Their unscrupulous practices are not welcome and will not be tolerated,” Frerichs said, noting that other contracts with Wells Fargo that the state is under contractual obligation to perform are under review.

“This is the first step we can take today,” he said.

Frerichs also said the misconduct at Wells Fargo may have jeopardized a key task his office undertakes: Finding the rightful owners or heirs of accounts left dormant for five years — often by people who died or simply forgot about them.

The five-year mark is supposed to trigger an alert to Frerichs’ office. But he fears the fraudulent accounts opened at Wells Fargo might have somehow “reset the clock” on otherwise dormant accounts that would have been brought to his attention.

In response, Frerichs announced Monday that his office would conduct an audit on Wells Fargo to ensure that the stale cash — potentially millions — goes to the rightful owners.

Shepherd issued another statement from the bank Monday afternoon that read: “Wells Fargo has diligently and professionally worked with the State of Illinois since 1970 to support the government and people of the state. We manage the state’s business in our Government & Institutional Banking division, which is separate from our retail bank.

“We certainly understand the concerns that have been raised,” she said in the statement. “We are very sorry and take full responsibility for the incidents in our retail bank. We have already taken important steps, and will continue to do so, to address these issues and rebuild the state’s trust.”

The San Francisco-based megabank has become a political punching bag.

Ald. Ed Burke took a swing last week.

Burke, who chairs the city’s finance committee, moved to ban Wells Fargo from receiving any city business for two years.

If approved, the ban would prohibit Wells Fargo from receiving city deposits, serving as an underwriter on city bond issues or trustee in any loan or redevelopment agreement. Wells Fargo also would be banned from brokering to buy investments on the city’s behalf or serving as a financial adviser.

The two-year ban is not an empty threat. Since 2005, Wells Fargo has received $19 million in fees from the city for a variety of financial services.

In 2013, under Mayor Rahm Emanuel, Wells Fargo expanded its footprint in Chicago by opening a regional headquarters at the CME Center in the West Loop.

At the time, Wells Fargo announced it had more than 800 employees in Chicago.

Contributing: Fran Spielman; Associated Press

The Latest
Couple considers leaving longtime hometown, and all the friends and neighbors there, to be more involved with their children and grandchildren.
From 1968 to today, volunteers in Chicago aim to connect visitors to their city, and to see some of the convention action themselves.
We asked: What’s the most important advice you could offer the class of 2024? Here’s what you told us.
The transit workers union wants the agency to stop using the $15.80-an-hour apprentices on the crews that scrub the outside of L cars, using an acid-based cleaner.
Then-Mayor Richard M. Daley “saw this as an opportunity to show a city that does work — not a city that crumbles under the pressure of protesters,” said Leslie Fox, executive director of the 1996 convention’s host committee. “The stakes were pretty high.”