California Launches Criminal Investigation Into Wells Fargo

The California Department of Justice is investigating Wells Fargo & Co. on allegations of criminal identity theft over its creation of millions of unauthorized accounts, according to a search warrant sent to the bank's San Francisco headquarters this month.
by | October 20, 2016 AT 12:40 PM

By James Rufus Koren

The California Department of Justice is investigating Wells Fargo & Co. on allegations of criminal identity theft over its creation of millions of unauthorized accounts, according to a search warrant sent to the bank's San Francisco headquarters this month.

The warrant and related documents, served Oct. 5 and obtained by the Los Angeles Times through a public records request, confirm that California Attorney General Kamala Harris, in the final weeks of a run for U.S. Senate, has joined the growing list of public officials and agencies investigating the bank in connection with the accounts scandal.

Harris' office demanded the bank turn over a trove of information, including the identities of California customers who had unauthorized accounts opened in their names, information about fees related to those accounts, the names of the Wells Fargo employees who opened the accounts, the names of those employees' managers and emails or other communication related to those accounts.

Her office is also requesting the same information about accounts opened by Wells Fargo workers in California for customers in other states.

Kristin Ford, a spokeswoman for Harris' office, said she could not comment on an ongoing investigation. Wells Fargo spokesman Mark Folk said the bank is "cooperating in providing the requested information," but would not comment further.

Documents filed along with the search warrant argue that there is probable cause to believe Wells Fargo violated two sections of the state penal code _ one outlawing certain types of impersonation, the other outlawing the unauthorized use of personal information. Both violations can be charged as felonies, punishable by imprisonment for more than a year.

It's not clear whether Harris' office is considering charges against individual bank workers, high-level bank executives or the bank itself. The investigation could lead to charges beyond the identity-theft allegations used to secure the search warrant.

In the weeks since Sept. 8, when the Los Angeles city attorney's office and federal bank regulators announced a $185 million settlement with Wells Fargo over the creation of the accounts, lawmakers and other regulators have questioned whether the bank may have violated fraud, labor and securities laws.

At a fiery Capitol Hill hearing last month, Sen. Elizabeth Warren, D-Mass., told former Wells Fargo Chief Executive John Stumpf that he should be criminally investigated. Stumpf abruptly retired last week and was replaced by longtime Wells Fargo executive Timothy Sloan.

There also have been questions about when and how much former bank executive Carrie Tolstedt, who led the bank division at the root of the accounts scandal, knew of the practices. She retired this summer, just months before the settlement was announced.

But identity theft has not been a central issue in the matter, and it's noteworthy that it seems to be at the heart of Harris' investigation, said Paul Stephens, policy director at the San Diego nonprofit Privacy Rights Clearinghouse.

"One wouldn't typically think of a financial institution opening an account in the name of a customer as being an act of identity theft," Stephens said. "It's a creative way of looking at these activities and finding them unlawful under a statute that arguably could be prosecuted in state court."

U.S. attorneys in San Francisco, New York and Charlotte, N.C., have opened their own investigations, though the scope of those inquiries is not clear.

Irving Einhorn, a retired white-collar criminal defense attorney and former head of the Securities and Exchange Commission's regional office in Los Angeles, said there are few charges that a state attorney general could bring that federal prosecutors could not.

Still, he said it's not surprising that Harris' office is investigating the bank on its own. "With a big national bank like this, there are overlapping jurisdictions," he said.

Not to mention political ramifications. Elected officials of all political stripes have jumped on Wells Fargo in the weeks since the settlement was announced, holding hearings, enacting sanctions and calling for legislation aimed at reining in big banks or even breaking them up.

In California, State Treasurer John Chiang last month said his office would cut off several business relationships with the bank, a move that's since been followed by officials in San Francisco, Seattle, Chicago and the states of Illinois and Ohio.

At this point, Einhorn said, no one wants to be left out.

"You have to remember how it looks to constituents in a particular state when their officials get tough with the big, bad banks," he said.

The attorney general's move to investigate the bank comes amid her campaign to succeed Sen. Barbara Boxer, who is retiring from her Senate seat. Harris is running against Rep. Loretta Sanchez, a fellow Democrat.

Harris has made her combat of wrongdoing in the financial services industry one of the themes of her campaign. She has especially pointed to her role in negotiating $20 billion in relief from banks for California homeowners who lost homes or suffered losses in the housing bust. But that deal failed to live up to promises she had made to send those responsible to jail, opening her up to some criticism.

By investigating Wells Fargo, Harris could be trying to burnish her bank-busting credentials, said Jack Pitney, a professor of politics at Claremont McKenna College.

"She's looking for every advantage she can get," he said. "Going after a big, unpopular bank can only help her with the electorate. Wells Fargo has gone into Voldemort territory when it comes to popularity."

Along with investigations by Harris' office and federal prosecutors, Wells Fargo is also under investigation by the federal Department of Labor, an outside law firm hired by the bank's board and two congressional committees.

With so many agencies looking at the bank, it's likely that there will be more revelations about the scope and the details of the problems that pushed more than 5,000 workers to open as many as 2 million unauthorized checking, savings and other accounts for customers over the last five years.

In a report last week following the announcement of Stumpf's retirement, Jaret Seiberg, an analyst for brokerage and investment bank Cowen & Co., said the former CEO's exit would not come close to ending problems for the bank.

"There are simply too many entities investigating for more troubles not to surface," Seiberg wrote.

(c)2016 Los Angeles Times