UNITED STATES OF AMERICA

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934

Release No. 88257 / February 21, 2020

ADMINISTRATIVE PROCEEDING

File No. 3-19704

In the Matter of

WELLS FARGO &

COMPANY,

ORDER INSTITUTING CEASE-ANDDESIST PROCEEDINGS PURSUANT TO

SECTION 21C OF THE SECURITIES

EXCHANGE ACT OF 1934, MAKING

FINDINGS, AND IMPOSING A CEASEAND-DESIST ORDER

Respondent.

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate that ceaseand-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities

Exchange Act of 1934 (“Exchange Act”), against Wells Fargo & Company (“Wells Fargo,” the

“Company,” or “Respondent”).

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer

of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the

purpose of these proceedings and any other proceedings brought by or on behalf of the

Commission, or to which the Commission is a party, Respondent:

A.

Admits the jurisdiction of the Commission over it and over the matters set forth in

the Order Instituting Cease-and-Desist Proceedings, Pursuant to Section 21C of the

Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist

Order (“Order”);

B.

Solely for the purpose of these proceedings and any other proceedings brought by or

on behalf of the Commission or to which the Commission is a party, consents to the entry of

an Order by the Commission containing the following findings set forth below:

III.

On the basis of this Order and Respondent’s Offer, the Commission finds1 that:

Summary

1.

These proceedings arise out of a fraud committed by Wells Fargo from 2012

through 2016, when the Company misled investors regarding the success of the core business

strategy of the Community Bank operating segment, its largest business unit. Wells Fargo publicly

stated on numerous occasions that its sales strategy was “needs-based.” In other words, Wells

Fargo claimed that its strategy was to sell customers the accounts that they needed. Well Fargo

published a Community Bank “cross-sell metric” in its Annual Reports, and quarterly and annual

filings with the Commission that purported to be the ratio of the number of accounts and

products per retail bank household. During investor presentations and analyst conferences,

Wells Fargo characterized its cross-selling strategy to investors as a key component of its financial

success and routinely discussed its efforts to achieve cross-sell growth. Wells Fargo referred to

the Community Bank’s cross-sell metric as proof of its success at executing on this core business

strategy.

2.

In contrast to the Company’s public statements and disclosures about needs-based

selling, the Community Bank implemented a volume-based sales model in which employees were

directed, pressured, or caused to sell large volumes of products to existing customers, often with

little regard to actual customer need or expected use. The Community Bank’s onerous sales goals

and accompanying management pressure led thousands of its employees to engage in: (1) unlawful

conduct to attain sales through fraud, identity theft, and the falsification of bank records, and (2)

unethical practices to sell products of no or low value to the customer, with the belief of the

employee that the customer did not actually need the account and was not going to use the account.

Collectively, many of these practices were referred to within Wells Fargo as “gaming.”

3.

From 2002 to 2016, Wells Fargo opened millions of accounts or financial products

that were unauthorized or fraudulent. During that same time period, Wells Fargo also opened

significant numbers of unneeded, unwanted, or otherwise low-value products by employees that

were not consistent with Wells Fargo’s purported needs-based selling model. Accounts and

financial products opened without customer consent or pursuant to gaming practices were included

by the Company in the Community Bank cross-sell metric until such accounts were eventually

closed for lack of use.

4.

Beginning as early as 2002, when a group of employees was fired from a branch in

Fort Collins, Colorado, for sales gaming, the Community Bank senior leadership became aware

that employees were engaged in unlawful and unethical sales practices, that gaming conduct was

The findings herein are made pursuant to Respondent’s Offer of Settlement and are not

binding on any other person or entity in this or any other proceeding.

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increasing over time, and that these practices were the result of onerous sales goals and

management pressure to meet those sales goals.

5.

From 2012 to 2016, Wells Fargo failed to disclose to investors that the Community

Bank’s sales model had caused widespread unlawful and unethical sales practices misconduct that

was at odds with its investor disclosures regarding needs-based selling and that the publicly

reported cross-sell metric included significant numbers of unused or unauthorized accounts.

Certain Community Bank senior executives who reviewed or approved the disclosures knew, or

were reckless in not knowing, that these disclosures were misleading or incomplete.

6.

Moreover in a January 12, 2015, response to a SEC Comment Letter that asked

how the cross-sell metric was calculated and in its 2014 and 2015 Annual Reports, Wells Fargo

characterized the cross-sell metric as a ratio of “products used by customers in retail banking

households.” Prior to and after that time, the metric was described as “products per household,”

“products per retail bank household,” or “the average number of products sold to existing

customers.” Community Bank executives knew that the metric included many products that were

not used by customers. Wells Fargo’s inclusion of the word “used” to describe the accounts was

therefore misleading.

7.

Notwithstanding the substantial effect the unused and unauthorized products had on

inflating the cross-sell metric, Wells Fargo continued to tout the cross-sell metric as one of the

Company’s competitive advantages in its public statements to investors. By failing to disclose the

extent to which the cross-sell metric was inflated by low-quality accounts, Wells Fargo sought not

only to induce investors’ continued reliance on the metric but also to avoid confronting the risk of

reputational damage that might arise—and eventually did arise—from public disclosure of the

severity and extent of sales quality problems.

Respondent

8.

Wells Fargo was a publicly traded financial services corporation headquartered in

San Francisco, California, and organized under the laws of the State of Delaware. Wells Fargo’s

common stock was registered under Section 12(b) of the Exchange Act and quoted on the New

York Stock Exchange (Ticker: WFC).

9.

Wells Fargo owned various subsidiaries through which it operated various lines of

businesses, including the wholly owned subsidiary WFB. WFB was a national bank and financial

institution under 31 U.S.C. § 5312, and its customers’ deposits were insured by the Federal Deposit

Insurance Corporation.

10.

Wells Fargo provided retail, commercial, and corporate banking services through

three operating segments for management reporting purposes: the Community Bank, Wholesale

Banking, and Wealth and Investment Management. Wells Fargo offered, through WFB and its

other subsidiaries, a diverse array of financial services and products to both individuals and

businesses.

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11.

Wells Fargo’s largest business unit was the Community Bank, which contributed

more than half (and in some years more than two-thirds) of the Company’s revenue from 2007

through 2016. The Community Bank was responsible for managing many of the everyday banking

products targeted to individuals and small businesses, including checking and savings accounts,

certificates of deposit, debit cards, bill pay, and global remittance products. The Community Bank

also made referrals to other units in Wells Fargo regarding mortgages, lines of credit, credit cards,

investment products (including brokerage products), insurance products, safe deposit boxes and a

variety of other banking products. All of the accounts, products, and services referred to in this

paragraph are hereinafter referred to collectively as “accounts and financial products.” Product

groups within the Community Bank designed and managed some of these accounts and financial

products, and others were designed and managed by other parts of the Community Bank.

12.

Accounts and financial products throughout Wells Fargo were offered to consumers

within a large network of branches, referred to within Wells Fargo as “stores,” as well as other

channels. Employees and officers of the Community Bank referred to accounts and financial

products as “solutions” to be “sold” to customers. The Community Bank managed the U.S.

branches. The branches employed various types of employees, including tellers, who processed

basic transactions and made referrals to bankers for account openings or complex transactions, and

bankers, who were generally responsible for offering accounts and financial products to customers.

Branch managers reported to other managers, and all ultimately reported up to senior regional

executives, called Regional Bank Executives (“RBEs”). The RBEs generally reported directly to

the head of the Community Bank.

Background

The Cross-Sell Model

13.

Beginning in 1998, Wells Fargo increased its focus on sales volume and reliance on

year-over-year sales growth. A core part of this sales model was the “cross-sell strategy.” As

described externally, the cross-sell strategy called for Wells Fargo to meet all of its customers’

financial needs by focusing on selling to its existing customers additional financial products that

those customers wanted, needed, and would use. Wells Fargo represented to investors that its

ability to execute successfully on its cross-selling strategy provided the Company with a

competitive advantage, caused an increase in revenue, and allowed it to better serve its customers.

14.

Wells Fargo characterized its cross-selling strategy to investors as a key component

of its financial success and routinely discussed its efforts to achieve cross-sell growth. Wells Fargo

described cross-selling as its “primary strategy” to achieve its “vision . . . to increase the number of

our products our customers utilize and to offer them all of the financial products that fulfill their

needs.” Wells Fargo stated that cross-selling was the “cornerstone of [its] business model and key

to [its] ability to grow revenue and earnings.” It was “the foundation of our business model.”

15.

Wells Fargo publicly stated on numerous occasions that its sales strategy was

“needs-based.” In other words, Wells Fargo claimed that its strategy was to sell customers the

accounts that they needed. In its 2012 Vision and Values statement Wells Fargo stated: “We do not

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view any product in isolation, but as part of a full and long-lasting relationship with a customer and

with that customer’s total financial needs. We start with what the customer needs—not with what

we want to sell them.” Its subsequent Vision and Values statement, published in 2015, contained

similar language. In its 2015 Annual Report, Wells Fargo stated that “[o]ur approach to cross-sell

is needs-based as some customers will benefit from more products, and some may need fewer.”

The Company’s 2012 through 2016 Annual Reports explicitly referred to these Vision & Values

statements.

16.

At Wells Fargo’s May 2010 Investor Day conference, a Wells Fargo senior

executive stated that “Our cross-sell focus starts with customer needs.” Similarly, during a March

2016 meeting with an analyst, the executive stated that Wells Fargo “only cross sell[s] products

which customers value and will use.” At Wells Fargo’s 2016 Investor Day conference, the

executive stated: “[A]s we think about products per household or cross-sell, the first thing we

anchor ourselves on is our vision of satisfying our customers’ needs.”

The Cross-Sell Metric

17.

From at least 2000 until the third quarter of 2016, Wells Fargo published a

Community Bank “cross-sell metric” in its Annual Reports and SEC Forms 10-Q, 10-K, and 8-K

that purported to be the ratio of the number of accounts and products per retail bank household.

During investor presentations and analyst conferences, Well Fargo referred to the Community

Bank’s cross-sell metric, which continued to increase over time until it flattened in Q2 2014 and

then decreased in Q3 2014, as proof of its success at executing on this core business strategy.

Wells Fargo touted to investors the consistent growth of the cross-sell metric over time as

demonstrative of its success at executing on its cross-selling strategy.

18.

Because of the centrality of the cross-sell metric to Wells Fargo’s investor

narrative, Company executives were focused on maintaining cross-sell growth from at least 2007

through 2016. The compensation of certain Company executives was impacted by cross-sell

growth.

Implementation of Cross-Sell at the Community Bank

19.

In contrast to the Company’s public statements and disclosures about needs-based

selling, the Community Bank implemented a volume-based sales model in which employees were

directed, pressured, and/or caused to sell large volumes of products to existing customers, often

with little regard to actual customer need or expected use. From at least as early as 2002 to

approximately 2013, Community Bank leadership directly and/or indirectly encouraged, caused,

and approved sales plans that called for aggressive annual growth in a number of basic banking

products, such as checking and savings accounts, debit cards, credit cards, and bill pay accounts.

20.

By approximately 2010, in light of existing product penetration, shifting demand,

macroeconomic conditions, and regulatory developments that made certain products—such as

checking accounts—less profitable, the sales plans were regarded in various parts of the

Community Bank as far too high to be met by selling products that customers actually wanted,

needed, or would use. Nevertheless, the number of products sold continued to be a significant

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criterion by which the performance of employees, ranging from tellers and bankers to RBEs, was

evaluated. Throughout the Community Bank, managers responded to the increasing difficulty of

growing sales by exerting extreme pressure on subordinates to achieve sales goals, including

explicitly directing and/or implicitly encouraging employees to engage in various forms of

unlawful and unethical conduct to meet increasing sales goals. Many employees believed that a

failure to meet their sales goal would result in poor job evaluations, disciplinary action, and/or

termination. Though there had been evidence of employees struggling to ethically meet sales goals

as early as 2002, the problem became significantly more acute beginning in 2010 as the sales plans

diverged further from market opportunity and managers responded by increasing pressure on

employees to sell products that customers did not want or need and would not use.

Unlawful and Unethical Misconduct by the Community Bank to Generate Sales

21.

The Community Bank’s onerous sales goals and accompanying management

pressure led thousands of its employees to engage in: (1) unlawful conduct to attain sales through

fraud, identity theft, and the falsification of bank records, and (2) unethical practices to sell

products of no or low value to the customer, while believing that the customer did not actually

need the account and was not going to use the account.

22.

Collectively, many of these practices were referred to within Wells Fargo as

“gaming.” “Gaming” was a term generally known at the Company and referred to employees’

manipulation and/or misrepresentation of sales to meet sales goals, receive incentive compensation

and/or avoid negative consequences, such as reprimands or termination. Gaming strategies varied

widely, and included using existing customers’ identities—without the customers’ consent—to

open checking and savings, debit card, credit card, bill pay, and global remittance accounts. Many

widespread forms of gaming constituted violations of federal criminal law. The following are

examples of gaming practices engaged in by Wells Fargo employees during the period from 2002

to 2016:

a. Employees created false records and forged customers’ signatures on account

opening documents to open accounts that were not authorized by customers.

b. After opening debit cards using customers’ personal information without consent,

employees falsely created a personal identification number (“PIN”) to activate the

unauthorized debit card. Employees often did so because the Community Bank

rewarded them for opening online banking profiles, which required a debit card PIN

to be activated.

c. In a practice known as “simulated funding,” employees created false records by

opening unauthorized checking and savings accounts to hit sales goals. They then

transferred funds to the unauthorized account to meet the funding criteria required

to receive credit for “selling” the new account. To achieve this “simulated funding,”

employees often moved funds from existing accounts of the customers without their

consent. Millions of accounts reflected transfers of funds between two accounts that

were equal in amount to the product-specific minimum amount for opening the later

account and that thereafter had no further activity on the later account; many of

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these accounts were subject to simulated funding. In many other instances,

employees used their own funds or other methods to simulate actual funding of

accounts that they had opened without customer consent.

d. Employees opened unauthorized consumer and business credit card accounts

without customer authorization by submitting applications for credit cards in

customers’ names using customers’ personal information.

e. Employees opened bill pay products without customer authorization; employees

also encouraged customers to make test or “token” payments from their bill pay

accounts to obtain employee sales credit (which was only awarded for bill pay

accounts that had made a payment).

f. Employees at times altered the customer phone numbers, email addresses, or

physical addresses on account opening documents. In some instances, employees

did so to prevent the customers from finding out about unauthorized accounts,

including to prevent customers from being contacted by the Company in customer

satisfaction surveys. Millions of non-Wells Fargo-employee customer accounts

reflected a Wells Fargo email address as the customer’s email address, contained a

generic and incorrect customer phone number, or were linked to a Wells Fargo

branch or Wells Fargo employee’s home address.

23.

Employees also intentionally persuaded customers to open accounts and financial

products that the customers authorized but which the employees knew the customers did not

actually want, need, or intend to use. There were many ways in which employees convinced

customers to open these unnecessary accounts, including by opening accounts for friends and

family members who did not want them and by encouraging customers to open unnecessary,

duplicate checking or savings accounts or credit or debit cards. Millions of secondary accounts and

products were opened from 2002 to 2016, and many of these were never used by customers.

24.

Gaming conduct and the practice of pushing unnecessary accounts on customers

began in at least 2002 and became widespread over time, lasting through 2016, when the

Community Bank eliminated product sales goals for its employees.

Community Bank Senior Leadership Knew the Unlawful and Unethical Misconduct was

Widespread and that Sales Goals and Pressure Were the Root Cause

25.

Beginning as early as 2002, when a group of employees was fired from a branch in

Fort Collins, Colorado, for sales gaming, Community Bank senior leadership became aware that

employees were engaged in unlawful and unethical sales practices, that gaming conduct was

increasing over time, and that these practices were the result of onerous sales goals and

management pressure to meet those sales goals.

26.

That information was reported to Community Bank senior leadership by multiple

channels. Those channels included Wells Fargo’s internal investigations unit, the Community

Bank’s own internal sales quality oversight unit, and managers leading the Community Bank’s

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geographic regions, as well as regular complaints by lower-level employees and Wells Fargo

customers reporting serious sales practices violations. For example, in a 2004 email, an internal

investigations manager described his efforts to convey his concerns about increasing sales practices

problems to Community Bank senior leadership: “I just want [Community Bank senior leadership]

to be constantly aware of this growing plague.” In 2005, a corporate investigations manager

described the problem as “spiraling out of control.” This reporting continued through 2016, and

generally emphasized increases in various forms of sales practices misconduct.

27.

By 2012, certain of the RBEs and their direct reports, Regional Presidents, were

regularly raising objections to Community Bank senior leadership about the sales plans. These

objections included objections regarding the levels at which the plans were set, the types and

categories of products for which they incented sales, the accompanying pressure, the resulting noor low-value accounts, and unlawful and unethical sales practices at the Community Bank. As of

2012, complaints about the sales goals were regularly escalated to Community Bank senior

leadership. These complaints specifically articulated that the sales goals were too high and incented

Community Bank employees to sell a significant number of low-quality or valueless duplicate

products, sometimes through misconduct. Similar complaints continued to be made until 2016.

28.

Certain of the RBEs and those who reported directly to them pushed Community

Bank senior leadership to shift to a model based on true needs-based selling, instead of volumebased selling with less regard for customer need or account quality. In some cases, Community

Bank senior staff also questioned the sales model’s focus on low-quality secondary accounts. For

example, in November 2013, a member of the senior staff wrote, “I really question the value of

adding growth to secondary checking in regions that have very high rates to begin with. Based on

what we know about the quality of those accounts it seems like we would want to keep their

secondary DDA flat or down . . . .” A year earlier, another senior staff member suggested

eliminating any incentive payments tied to accounts that never funded, debit cards that were never

used, and more than one demand deposit account per customer per day. Nevertheless, the

Community Bank and its senior leadership was unwilling to fundamentally alter the sales model.

29.

Certain Community Bank senior executives believed that some of the unwillingness

to change the sales model was tied to Community Bank senior leadership’s focus on the cross-sell

metric. For example, in an October 2012 email chain with the head of the deposit products group—

the group responsible for the most significant products supervised by the Community Bank,

including checking accounts, savings accounts, and debit cards—the Community Bank’s group

risk officer wondered why Community Bank senior leadership was “putting together a plan that we

know isn’t attainable.” The head of the deposit products group responded that Community Bank

senior leadership was “backed up against the wall due to the cross-sell metric.”

Community Bank Senior Leadership Exacerbated the Sales Practices

Problem and Concealed Material Facts

30.

Even though Community Bank employees often did not meet the sales goals—or

met them by selling products and accounts customers neither wanted nor needed—Community

Bank senior leadership increased the sales plans nearly every year through 2013. Pressure to meet

those ever-increasing plans also increased during this time period. Even after 2012, when Wells

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Fargo began regularly retroactively lowering goals during the sales year in recognition that the

goals were unachievable, employees still largely missed the lowered goals, an indication that they

continued to be too high.

31.

Despite knowledge of the widespread sales practices problems, including the

pervasive illegal and unethical conduct tied to the sales goals, Community Bank senior leadership

failed to take sufficient action to prevent and reduce the incidence of unlawful and unethical sales

practices.

32.

Community Bank senior leadership also contributed to the problem by promoting

and holding out as models of success managers who tolerated and encouraged sales integrity

violations.

33.

Certain Community Bank leaders also impeded scrutiny of sales practices by Wells

Fargo’s primary regulator, the Office of the Comptroller of Currency (“OCC”). During OCC

examinations in February and May 2015, the OCC was given information that minimized the

amount of sales pressure within the Community Bank and the size and scope of Wells Fargo’s

sales practices problem.

34.

On numerous occasions, Community Bank senior leadership also made statements

and gave assurances to the Company’s management and Board of Directors that minimized the

scope of the sales practices problem and led key gatekeepers to believe the root cause of the issue

was individual misconduct rather than the sales model itself. Until approximately 2015,

Community Bank senior leadership viewed negative sales quality and integrity as a necessary

byproduct of the increased sales and as merely the cost of doing business. They nonetheless failed

to advise key gatekeepers of the significant risks that the non-needs-based selling posed to the

Company.

35.

Notwithstanding the substantial effect the unused and unauthorized products had on

inflating the cross-sell metric, Wells Fargo continued to tout the cross-sell metric as one of the

Company’s competitive advantages in its public statements to investors. By failing to disclose the

extent to which the cross-sell metric was inflated by low-quality accounts, Wells Fargo sought not

only to induce investors’ continued reliance on the metric but also to avoid confronting the risk of

reputational damage that might arise—and eventually did arise—from public disclosure of the

severity and extent of sales quality problems.

Scope of the Unlawful and Unethical Misconduct

36.

Between 2011 and 2016, tens of thousands of employees were the subject of

allegations of unethical sales practices. During this period, the Company referred more than 23,000

employees for sales practices investigation and terminated over 5,300 employees for customerfacing sales ethics violations, including, in many cases, for falsifying bank records. Thousands of

additional employees received disciplinary action short of termination or resigned prior to the

conclusion of the Company’s investigations into their sales practices.

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37.

Almost all of the terminations and resignations were of Community Bank

employees at the branch level, rather than managers outside of the branches or senior leadership

within the Community Bank.

38.

From 2002 to 2016, Wells Fargo opened millions of accounts or financial products

that were unauthorized or fraudulent. During that same time period, Wells Fargo employees also

opened significant numbers of additional unneeded, unwanted, or otherwise low-value products

that were not consistent with Wells Fargo’s purported needs-based selling model. Wells Fargo

collected millions of dollars in fees and interest to which the Company was not entitled, harmed

the credit ratings of certain customers, and unlawfully misused customers’ sensitive personal

information (including customers’ means of identification). In general, the unauthorized,

fraudulent, unneeded, and unwanted accounts were created as a result of the Community Bank’s

systemic sales pressure and excessive sales goals.

Impact of Sales Practices Misconduct on Cross-Sell Disclosures

39.

Accounts and financial products opened without customer consent or pursuant to

gaming practices were included by the Company in the Community Bank cross-sell metric until

such accounts were eventually closed for lack of use. When Community Bank senior leadership set

employee sales goals at a level to achieve year-over-year sales growth, it rarely took into

consideration that the base level of sales included accounts or financial products resulting from

unlawful misconduct or gaming. This had the effect of imposing additional pressure on employees

to continue gaming practices.

40.

Like the accounts and financial products lacking customer consent, accounts and

financial products that were never or seldom used by customers were also included by the

Company in the Community Bank cross-sell metric until such accounts were eventually closed for

lack of use, at which time those accounts were removed from the cross-sell metric. In some cases

(like checking or savings accounts), the unused accounts were closed relatively quickly (usually

within 90 days if unfunded), but in other cases (like debit cards, the largest product category

included in the cross-sell metric, or bill pay, another large contributor to cross-sell), the unused

accounts remained open without activity for up to four years.

41.

From 2012 to 2016, Wells Fargo failed to disclose to investors that the Community

Bank’s sales model had caused widespread unlawful and unethical sales practices misconduct that

was at odds with its investor disclosures regarding needs-based selling and that the publicly

reported cross-sell metric included significant numbers of unused or unauthorized accounts.

Certain Community Bank senior executives who reviewed or approved the disclosures knew, or

were reckless in not knowing, that these disclosures were misleading or incomplete.

42.

At the end of 2012, the Community Bank decided to add existing global remittance

accounts to the calculation of the cross-sell metric over the course of 2013. It did so by excluding

inactive global remittance accounts, in a manner inconsistent with prior practice. It was never

disclosed to investors that the product was added to the metric. By the end of 2013, the cross-sell

metric had grown by .11 since the prior year. However, .04 of that growth resulted from the

addition of global remittance, and the remaining growth was attributable to an increase in accounts

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and financial products that had been inactive for at least 365 days. Nonetheless, Wells Fargo’s FY

2013 Form 10-K, filed February 2014, touted that the Community Bank had achieved record crosssell over the prior year.

43.

Nonetheless, despite the addition of a new product, by late 2013 and early 2014,

quarter-over-quarter growth in the cross-sell metric had flattened, significantly because of a

slowdown in sales growth as a result of, among other things, the Community Bank’s belated efforts

to impose increased controls to curb misconduct resulting from aggressive sales goals. At a May

2014 Investor Day conference, a Wells Fargo senior executive responded to a question about what

was causing the cross-sell growth to slow with a misleading answer. Instead of truthfully

answering what she knew at the time—that a significant portion of the decline in cross-sell growth

was a result of declining sales growth, in part caused by the efforts to address historical sales

misconduct—she misleadingly described the cross-sell trend as not “bad news” and offered three

innocuous or positive trends that could impact cross-sell growth over time, two of which she had

no evidence were meaningfully affecting cross-sell growth in 2014. Providing a complete answer

to investors would have required Wells Fargo to acknowledge the sales practices misconduct that

Wells Fargo had failed to disclose in the past as well as Wells Fargo’s growing struggles to grow

its retail bank sales as it had historically.

44.

A Wells Fargo senior executive was again asked about the decline in cross-sell at

the May 2016 Investor Day. An analyst noted that the decline was “a bit of a change for [the

Community Bank]” and asked whether it was “an inevitable saturation” or a reflection of “a need

for new products.” The senior executive acknowledged that there had been “headwinds,” but

attributed the decline to strong checking account growth (which is generally a first product and

therefore would have potentially diluted the ratio by bringing on new customers who start out with

fewer products) and “the interest rate environment” causing “some products [to not be] particularly

appealing to our customers right now.” However, by failing to acknowledge that declining product

sales, improving sales quality, and the roll-off of low quality accounts was a significant cause of

cross-sell decline, Wells Fargo’s response was again incomplete and misleading.

45.

Moreover, in a January 12, 2015, response to an SEC Comment Letter that asked

how the cross-sell metric was calculated and in its 2014 and 2015 Annual Reports, Wells Fargo

characterized the cross-sell metric as a ratio of “products used by customers in retail banking

households.” Prior to and after that time, the metric was described as “products per household,”

“products per retail bank household,” or “the average number of products sold to existing

customers.”

46.

Community Bank executives knew that the metric included many products that

were not used by customers. Wells Fargo’s inclusion of the word “used” to describe the accounts

was therefore misleading.

47.

Several months after changing its disclosure that described how the cross-sell

metric was calculated to characterize the metric as “products used,” Community Bank senior

leadership began to develop an alternative metric to capture products that had been used. The

Community Bank referred to this metric internally as “active cross-sell.” In developing the active

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cross-sell metric, Community Bank senior leadership recognized that as many as ten percent of

accounts included in the cross-sell metric had not been used within the previous 12 months. The

Community Bank considered releasing this alternative metric to investors, but never did so, in part

because of concerns raised by Community Bank senior leadership and others that its release would

cause investors to ask questions about Wells Fargo’s historical sales practices.

48.

Following the Company’s announcement of the September 2016 settlements with

the OCC, the Consumer Financial Protection Bureau, and the City of Los Angeles that confirmed

publicly for the first time the scale of the sales practices misconduct within the Community Bank,

as well as the widespread media and political criticism of the Company that resulted, Wells Fargo’s

stock experienced three significant stock drops that translated into an approximately $7.8 billion

decrease in market capitalization.

49.

As a result of the conduct described above, Wells Fargo violated Section 10(b) of

the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in connection

with the purchase or sale of securities.

Deferred Prosecution Agreement

50.

Respondent has entered into a deferred prosecution agreement that acknowledges

responsibility for criminal conduct relating to the findings in the Order. Specifically, Respondent

acknowledged responsibility for violations of 18 U.S.C. §§ 1005 and 1028A in entering into such

agreement with the United States Attorney’s Office. In connection with that deferred prosecution

agreement, Respondent admitted the facts set out in Exhibit A to that agreement.

Wells Fargo’s Remedial Efforts

51.

In determining to accept Wells Fargo’s Offer, the Commission considered that

Wells Fargo since 2016, has undertaken remedial measures to address the sales practices

misconduct, including: terminating certain employees for their roles relating to the misconduct;

replacing the majority of the Operating Committee – Wells Fargo’s senior-most management

committee; reconstituting its Board of Directors such that a majority of the independent directors

are new; and reorganizing itself to centralize control functions.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions

agreed to in Respondent Wells Fargo’s Offer.

Accordingly, it is hereby ORDERED that:

A.

Pursuant to Section 21C of the Exchange Act, Respondent Wells Fargo shall cease

and desist from committing or causing any violations and any future violations of Section 10(b) of

the Exchange Act and Rule 10b-5 thereunder.

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B.

Respondent shall, within 14 days of the entry of this Order, pay a civil money

penalty in the amount of $500,000,000.00 (Five Hundred Million Dollars) to the Securities and

Exchange Commission. If timely payment is not made, additional interest shall accrue pursuant to

31 U.S.C. §3717.

Payment must be made in one of the following ways:

(1)

Respondent may transmit payment electronically to the Commission, which

will provide detailed ACH transfer/Fedwire instructions upon request;

(2)

Respondent may make direct payment from a bank account via Pay.gov

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or

(3)

Respondent may pay by certified check, bank cashier’s check, or United

States postal money order, made payable to the Securities and Exchange

Commission and hand-delivered or mailed to:

Enterprise Services Center

Accounts Receivable Branch

HQ Bldg., Room 181, AMZ-341

6500 South MacArthur Boulevard

Oklahoma City, OK 73169

Payments by check or money order must be accompanied by a cover letter identifying

Wells Fargo & Company as a Respondent in these proceedings, and the file number of these

proceedings; a copy of the cover letter and check or money order must be sent to Monique

Winkler, Associate Regional Director, Division of Enforcement, Securities and Exchange

Commission, 44 Montgomery Street, Suite 2800, San Francisco, CA 94104.

C.

Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, a Fair Fund is

created for the penalties referenced in paragraphs IV.B above. Amounts ordered to be paid as civil

money penalties pursuant to this Order shall be treated as penalties paid to the government for all

purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty,

Respondent agrees that in any Related Investor Action, it shall not argue that it is entitled to, nor

shall it benefit by, offset or reduction of any award of compensatory damages by the amount of any

part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”). If the court in

any Related Investor Action grants such a Penalty Offset, Respondent agrees that it shall, within 30

days after entry of a final order granting the Penalty Offset, notify the Commission’s counsel in

this action and pay the amount of the Penalty Offset to the Securities and Exchange Commission.

Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change

the amount of the civil penalty imposed in this proceeding. For purposes of this paragraph, a

“Related Investor Action” means a private damages action brought against Respondent by or on

behalf of one or more investors based on substantially the same facts as alleged in the Order

instituted by the Commission in this proceeding.

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D.

Wells Fargo shall pay all administrative costs and expenses of any distribution

from the Fair Fund, including, but not limited to, the fees and expenses of a fund administrator and

tax administrator, within thirty (30) days after receipt of an invoice for such services and amounts.

By the Commission.

Vanessa A. Countryman

Secretary

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