The regulator charged the bank with "failing reasonably to supervise investment advisers and registered representatives who recommended single-inverse exchange-traded fund (ETF) investments to retail investors, and for lacking adequate compliance policies and procedures with respect to the suitability of those recommendations."
Single-inverse ETFs are historically risky investments with the potential to incur sizable losses if held for longer than a day. In Wells Fargo’s case, the bank advised investors to hold single-inverse ETFs for months or even years, essentially ensuring investors would incur losses while the bank would profit. Most of these investors were seniors or retirees with low to moderate risk investment portfolios, according to the SEC.
The multimillion-dollar payout is just the latest in a recent string of penalties for Wells Fargo over its business practices.
"Firms must maintain effective compliance and supervisory programs to ensure that the securities they recommend are suitable for their clients," Antonia Chion, associate director of the SEC Enforcement Division, said in a press release. "As a result of Wells Fargo's failure to meet these important obligations, some of its employees recommended complex instruments to retail investors who did not understand the risks involved."
The Office of the Comptroller of the Currency (OCC) in January ordered former CEO John Stumpf to pay a $17.5 million fine related to the bank’s 2016 fake accounts scandal, and the Department of Justice (DOJ) and SEC last week ordered Wells Fargo to pay a $3 billion fine as part of a settlement over the scandal.
Democrats slammed the DOJ decision as a mere "slap on the wrist," calling for heavier fines and penalties for the bank.
Besides giving fraudulent investment advice to clients, the bank has been accused of discriminatory lending — after several studies and cities found that borrowers of color pay much more on average for mortgages and student loans — and overcharging small businesses with merchant credit card fees.
The slew of fines and penalties has substantially hampered growth for the nation’s fourth-largest bank.
The bank hit a net income nine-year low in its latest quarterly earnings report, with Q4 profits falling 53% year over year.
New CEO Charlie Scharf said in the January earnings call that "big parts of the company" are "extraordinarily inefficient." The bank will focus on reviewing its budget this year, he added, which suggests potential restructuring and layoffs as the bank copes with losses and revamps its public image to regain consumer trust.