Wells Fargo Admits to Fraudulent Accounts and Overcharges for Foreign Exchange Services: "When in Doubt, Spread Them Out"

The last five years have not been good for Wells Fargo, one of the nation's "Big Four" banks. The institution has been wrapped up in legal issues since it was discovered that millions of accounts were created without customer consent.

• In 2017, due to the decreased profitability brought by the accounts fraud scandal, Wells Fargo decided to close more than 400 of its approximately 6,000 branches.
• In 2018, the Federal Reserve mandated Wells Fargo to keep its assets below $1.95 trillion until it improved its governance and control practices.
• In 2019, Wells Fargo CEO Tim Sloan resigned over the management of the accounts fraud scandal.
• In 2020, Wells Fargo agreed to pay $3 billion to defer criminal prosecution and settle civil claims ensuing from the opening of millions of accounts without customer authorization.

In September 2021, just as Wells Fargo was getting over the last scandal, the U.S. Department of Justice brought a fraud complaint against the bank in federal court for the Southern District of New York. The complaint alleged that the bank intentionally overcharged 771 commercial customers for foreign exchange (or "FX") services between 2010 and 2017.

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Tricky Trades and Wire Piñatas

According to the complaint, Wells Fargo told its commercial customers that they would be charged a fixed price rate (or "spread") for FX services. But the company went on to encourage employees to overcharge customers using the following

• Fabricated Data: FX sales specialists provided customers with false transaction data to cover fraudulent charges.
• Big Figure Trick: FX specialists switched the digits in transaction prices in such a way that resulted in customers paying higher spreads. For example, if the correct price to purchase a British pound was 1.35 U.S. dollars, the sales specialists switched the price to 1.53 USD. They could thus claim that the price had been mistakenly transposed if caught—a move known as the "Big Figure Trick."
• User-based Pricing: A customer would be charged a different spread depending on which bank representative was executing the trade. For example, if Wells Fargo's FX sales representatives thought a customer employee was less sophisticated or experienced, they would charge them a larger spread.
• Wire Piñata: The bank would not usually provide immediate notice to customers when they receive incoming wires of a foreign currency or when the currency was converted. Since rates fluctuated throughout the day, the FX specialist could retroactively select the most favorable rate for the bank and the worst rate for the customer, playing a game of "wire piñata.

The company admitted that sales specialists would celebrate transactions resulting in a larger FX spread than agreed with the customer and use expressions such as "when in doubt, spread them out" or "back the truck up" to describe their tactics.

Wells Fargo entered into a $72.6 million settlement agreement soon after the complaint was filed, admitting to the wrongdoing. The bank agreed to pay $35.3 million in restitution to overcharged customers and the remaining $37.3 million to the U.S. as civil penalties and asset forfeiture under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).

Approval from U.S. District Judge John Koeltl is still required for the settlement agreement to be enforceable.

Pressure Buildup

Even though the fraudulent accounts scandal and the fraudulent overcharge for foreign exchange services are different issues, both seem to stem from a work culture that pressures employees to meet overly demanding targets and that fosters disrespect towards customers. With respect to the accounts fraud, Wells Fargo admitted that it pressured employees to meet "unrealistic sales goals that led thousands of employees to provide millions of accounts or products to customers under false pretenses or without consent."

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