Thursday, October 21, 2021

Wells Fargo alleged $2.9B U.S. bank scam — here’s what went down

PHILADELPHIA (CNN) – An inside look at the massive sales scandal that has rocked Wells Fargo.

Ivana M, a former Wells Fargo credit card associate, describes an overseas transaction that started with a very simple request:

“Over in the dollar office, the credit card fee sheets are lined up there …, and one of my co-workers came up to me and she says, ‘you know, I have to tell you. This fee you are asking for is set up for you.’ And I looked and I didn’t know what she was talking about and she was like, ‘No, no.’ ‘I have to tell you. It’s set up for you. This is where this percentage is set up in.’

“She said, ‘Would you be willing to take a lower percentage?’ I said, ‘Absolutely.'”

M, who did not want to reveal her last name, says she eventually came to believe the order had a specific purpose. As she told CNN’s Fredricka Whitfield:

“She kind of sweet-talked me into it and my boss’s like, ‘Well, you know, it’s not like you can’t decline that loan, right?’ I was like, ‘No, but I can’t refuse that loan either.’ It was definitely put into place for me.”

That’s $2,938,429 worth of foreign currency fees added to the larger Wells Fargo Visa MasterCard contracts from 2008 to 2018 — almost a quarter of a billion dollars in the process.

If the bogus accounts scandal had never happened, what would it look like?

On August 3, 2008, Wells Fargo acquired LaBranche & Co., one of the biggest financial industry providers for foreign currency trades and among the largest players in the industry in the early days of the global financial crisis.

LaBranche, along with other world financial firms, had emerged during the dot-com bubble and dot-com bust and survived the crash of 2007 with a new name and a lucrative fintech business of managing foreign currency trades for Wall Street firms.

The firm helped coordinate trades between its clients such as mutual funds, banks and hedge funds and spot opportunities to profit from market movements.

LaBranche wasn’t the only bank that carried its credit card acquisition on its record.

In the years after the credit card acquisition, its currency trading business would grow into the world’s third-largest clearing firm by assets in 2017, while the bank focused on its retail mortgage business — its major non-financial business.

And then there were the billions in extra fees.

“For three years I didn’t know. I couldn’t understand what they were charging me,” Ivana M. said, adding, “every time I asked them something. I just got, ‘No we already told you.'”

Wells Fargo did not answer a request for comment.

LaBranche in its 2016 annual report called the foreign exchange business “an integral part of our diversified business strategy. We believe it has the potential to generate significant earnings through the capture of operational economies of scale.”

But the bank’s five-year foreign exchange annual report from 2017, says: “Foreign exchange business has represented a significant net after-tax expense for the Bank in the years of 2007 through 2011, and remains so in the years of 2012 through 2018.”

That helps explain how Wells Fargo, which has said it “inherited the credit card joint venture losses” from LaBranche after its acquisition, could have managed $2,938,429 in unnecessary foreign exchange payments.

Financial industry watchdogs in the US are skeptical that the deal accomplished anything at all. The financial crisis shows a banking industry made up of trillions of dollars worth of big-buck trades, with no regulation, interlocking personnel and inter-relationships.

It’s unclear whether anyone outside Wells Fargo saw the transactions as “irregular.” In any case, the bank admitted in its 2017 annual report that its “lawyers and accountants determined that the transactions did not violate applicable law.”

Asked whether Wells Fargo could be liable for added foreign exchange fees since they were set up for just one partner rather than for all three credit card holders, an attorney with the US Department of Justice’s financial crimes division, Beth Freedman, said, “The matter is still under investigation.”

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