What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing in today's video we're going to talk about one of the biggest frauds perpetrated by wall street's mega banks of the past decade, one that cost millions of Everyday consumers, an aggregate loss of hundreds of millions, if not billions, of dollars. Imagine waking up one day, checking your bank statement and finding an extra line of credit in your name that you never opened along with additional fees and charges associated with it. Most people would suspect, sophisticated fraudsters, hackers with extensive technical and criminal know-how and possibly even someone who has somehow gained access to their banking information and credentials. In this case, all three proved to be true, but the identity of the perpetrators was in fact one of wall.

Street's most powerful institutions wells fargo before we get into the video we'd like to thank our channel members. Members get access to these non-time sensitive videos one day in advance and also get to vote on some of our video topics. Wells fargo is among the most recognizable mega banks in the world based in san francisco. It dates back to 1852, when henry wells and william fargo founded the company.

Since then, it has provided banking services for international clients around the world. In the earlier part of the 2010s wells, fargo was the most valuable banking company in the world by market cap more valuable, even than jp morgan. Although jp morgan would soon overtake wells fargo for the top spot, it was considered to be one of the big four banks in the u.s, along with jp morgan bank of america and citigroup. It was also in 2015 ranked the 22nd most admired company in the world.

As well as the 7th most respected by forbes, however, that would all change in epic fashion, as once, the world's biggest bank would fall to the vexation of american regulators and become the laughing stock of wall street. For years, wells fargo has used a questionable practice known as cross selling, where the firm aggressively tries to sell multiple products to existing banking customers. These practices include things like encouraging an unsophisticated customer with a simple checking account to take out a mortgage on their home. Whether or not the customer needs a mortgage at all.

In the first place, wells fargo measured its own business success in part by the number of distinct products sold to the average customer, encouraging this predatory marketing scheme. As a result, for a long time, wells had been considered the best cross seller in the baking industry, starting from the top level management wells, fargo branches were encouraged and pressured to sell more products to banking clients. They cultivated a cutthroat corporate culture that pressured branch employees to strive to sell at least eight different products to each customer. The most intense pressures came as the result of the banking giant, dick kovacevic ceo of wells fargo from 1998 to 2007.

under kovacevic wells, fargo, viewed mortgages, savings accounts and credit cards as products to be sold to banking clients who he viewed as customers. This corporate culture eventually led to blatant fraud, possibly as early as 2011 wells fargo began, opening customer accounts without their consent. They would take the banking and identification information of existing customers and open new fee, bearing accounts for different products and services. These products included, checking accounts, credit cards and other banking services that had significant fees attached to them.

In thousands of cases, wells fargo ordered new credit cards for clients without their consent. These credit cards were issued to clients who were pre-qualified, and thus they could be issued without the client going through an application process or even knowing about it. Wells fargo used the contact information of their own employees when making the credit card accounts in order to prevent customers from receiving notifications and thus finding out about the fraud. Similarly, wells fargo created thousands of fraudulent checking and savings accounts for their existing clients.

This scam was especially shocking because in many instances, money had to be actively moved from existing accounts into new ones without their client's permission or even knowledge. Moreover, wells fargo used a scheme dubbed pinning whereby they set clients personal identification numbers to zero zero zero zero. In many of these frauds, by setting this default pin number at the time that clients originally opened their accounts at wells, the bank was able to in essence, commit identity theft and effectively had controlled the client's accounts through their pin numbers wells. Fargo's fraud was so shameless that it even targeted the homeless.

According to an la times report, one homeless woman was talked into opening six different accounts with the bank, incurring fees of 39 a month. The scams also extended into insurance policies. The bank sold unwanted life insurance and renters insurance policies to unsuspecting customers. These policies were originated by prudential and assurance, but sold by wells fargo, among other brokers, upon the realization that these policies were being fraudulently opened by wells fargo without customers, knowledge, credential, cut its life insurance sales ties with wells.

Eventually, the wall street titan was unable to keep up the sham any longer. In september of 2016, the consumer financial protection bureau announced that they had issued a 185 million dollar fine for the bank for illegal activity. However, the fine was nothing more than a drop in the bucket for wells fargo. They had opened literally millions of fake accounts over the years in the single quarter, leading up to the point.

When the fine was issued wells, fargo reported 5.6 billion dollars of net income. Divided out amongst the quarter, the 185 million dollar fine was paid off in only three days. Naturally, the big bank denied that it did any of these things intentionally. Instead, it blamed individual employees for committing the crimes saying that their sales culture was not the cause of the actions and that the scams were not part of any intentional strategy.

This excuse has been used by many of the big banks, including jpmorgan and goldman sachs, blaming individual bankers and traders for their scandals, including insider trading and market manipulation. In the end for wells fargo, it meant a tarnished reputation after more than a century and a half of enjoying one of the best reputations in the financial industry after the scandal was uncovered. The scale and blatancy of the fraud was so galling that multiple major government regulators and institutions opened up further investigations. Ceo john stumpf was called before the senate banking committee, where he was grilled by democratic senator elizabeth warren and republican patrick toomey.

Jimmy said that he doubted wells, fargo's claim that 5 300 employees which wells had since fired, acted independently without directions from management. Warren, meanwhile called for the resignation of the ceo and asked the federal reserve chairman to restrict the bank's corporate growth. Under the current ceo, the house financial services committee also investigated the bank further in 2019, three years after the revelations, the chair of the committee maxine waters called for the dismantling of the bank and prompted the resignation of wells fargo's chairwoman, three days before congressional hearings, the Securities and exchange commission also launched an investigation into the crimes committed by the bank, together with the justice department, they forced the bank into a 3 billion settlement, that's more than 10 times bigger than the previous fine brought by the consumer financial protection bureau. Additionally, it does not preclude the bank from facing further lawsuits related to the matter.

However, given that even this fine only amounted to about half the company's corporate quarterly profit, some might say that it did not go far enough if an individual committed identity theft and open fraudulent banking accounts in order to scam money from hundreds of thousands of victims, they Would likely face prison time and steep fines. Wells fargo, on the other hand, only had to pay about 15 of its annualized income in the fine, which would be like the average person in the u.s paying a fine of about five thousand dollars following the investigations wells. Fargo lost a number of public clients, california suspended its business relationship with the bank for a year and ended an agreement whereby wells fargo would underwrite municipal bond offerings. After the year was up the california state.

Treasurer john chang announced that the bank had been disturbingly opaque in the way that it did business and that continuing revelations about the bank's greed and lack of institutional control were reasons why california would extend its sanctions against the bank for an additional year. Other clients, including the cities of chicago philadelphia and seattle, as well as the state of illinois, all ended their relationships with wells fargo. The lawsuits and investigations into the scandal continue to be ongoing. The 3 billion fine handed to wells fargo by the sec and justice department do not prevent future lawsuits or fines from being levied against the bank, while further investigations are completed by various governmental entities.

Wells fargo is dealing with a tarnished reputation in society. Following the revelations of the scandal, ceo john stumpf refused to resign to the surprise and outrage of many. Instead, he blamed the crimes of the company on low-level employees, many of which had been fired in interviews with former wells fargo employees. From the time of the scandal, former branch employees described working conditions where the pressure was nothing less than unbearable.

Crying vomiting and severe panic attacks were frequent symptoms of the intense pressure from upper level management to sell products. The ethics hotline within the company was reportedly unresponsive and, in some cases, allegedly retaliatory with employee firings. It has been widely reported that, during the time of the scandal wells, fargo employees who tried to leave the bank either in protest of the crimes being committed or after being fired for whistleblowing, were unable to find work at competing firms. It has been uncovered that wells fargo issued u5 documents after employees left the company which were made to implicate the employees of being complicit in the crimes.

As a result of these documents, the employees were effectively blacklisted, among all the other banks in the industry. There is currently no regulatory process in place for a victim of such corporate retaliation to file a lawsuit in regard to the u5 form in the years since the scandal was first uncovered wells, fargo of stock has suffered in comparison to its wall street peers, the fake Account scandal, along with other blunders by the company, has led to falling corporate profits and weaker business success among consumers. People are understandably more hesitant these days to trust a bank that would defraud its own clients. However, the harsh reality is that the problem of unethical behavior by the big banks is not confined to wells fargo.

In fact, it seems to be pervasive among the u.s mega banks, whether it be through predatory pricing, market manipulation, bribery or facilitation and funding of illegal behavior. For corporate profits, for more content on the various scandals and frauds perpetrated by the other big banks check out our other videos on jpmorgans and goldman sachs's billion dollar market manipulation. Schemes also make sure you're subscribed for more videos like this one. If you like, this video make sure to smash the like button and we'll see you in the next video as always.

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