The fallout continues from Wells Fargo’s settlement with the Consumer Financial Protection Bureau (CFPB) over the bank’s fake account scandal. Last September, federal regulators announced that Wells Fargo employees created upwards of 2 million bank and credit card accounts without customer approval. The settlement included $185 million dollars in fines—the largest ever issued by the regulatory agency. Not long after the settlement came to light, California’s state treasurer announced a suspension of business dealings with Wells Fargo citing a lack of public trust in the bank.
Although Wells Fargo has made attempts to save its public image (firing thousands of employees for ethics violations and stripping its CEO of unvested stock awards and bonuses), CNN Money reports that new revelations about Wells Fargo’s lack of disclosure to its shareholders is under scrutiny.
Under federal law, public companies are required to disclose information about any non-routine legal proceedings to shareholders. But Wells Fargo remained silent about the investigation in a Security and Exchange Commission (SEC) filing just weeks before the CFPB announced the settlement.
As with any federal law, there are grey areas. The law requires public companies to describe pending “material” legal proceedings that are not in the ordinary course of litigation as it relates to the company’s business. The grey area: how to define “material.” While that definition may be up for debate, the law goes on to state that proceedings requiring disclosure include those “known to be contemplated by government authorities.”
Nevertheless, in a hearing before the House Financial Services Committee, Wells Fargo CEO, Mr. Stumpf, made clear that Wells Fargo believed the $185 million in fines was not material. Interesting determination if you ask me, and some lawmakers on Capitol Hill agree. With the bank’s declining share values and tarnished reputation, it’s hard to see how Wells Fargo shouldn’t have made the disclosure in a timelier manner.
In response to CNN Money’s report, Wells Fargo stated that before each quarterly SEC filing, it weighs “relevant and appropriate facts and circumstances to determine whether a matter is material and should be disclosed.”
While the SEC has not commented on whether it will investigate Wells Fargo’s disclosure practices, it’s safe to say that the bank won’t be out of the clear anytime soon. Other lawmakers have called on the SEC to investigate the bank for various reasons. If more investigations do ensue, maybe Wells Fargo will realize that silence is not always a weapon for the one who remains quiet.