On Tuesday, the Securities and Exchange Commissions (SEC) said that the fortune 500 company, Wells Fargo, would have to pay $6.5 million as penalty for failing to disclose risks on investments sold to non-profit organizations, municipalities and other customers.
In 2007, the company engaged in the sales of a number of mortgage-backed securities investments to traditionally conservative organizations and municipalities. A total of ten customers incurred huge losses, two of which have already settled the dispute at an undisclosed amount with Wells Fargo, two others have incurred a joint loss of $4.2 million, while those of the remaining six have remained undetermined according to the SEC.
The company's former vice present, Shawn McMurty, who was responsible for making majority of the sales, has been penalized with a fine of $25,000 and a possible ban of six months from the security industry.
The SEC tells CNN Money, that the fortune 500 is being punished for not warning its customers of "the true nature, risks, and volatility behind these products."
Wells Fargo Spokesman released a statement saying, these events "occurred more than 5 years ago and pertain to a part of the firm that was completely revamped after the merger with Wachovia," as reported by CNN Money, thus trying to shift the blame on circumstance rather than intention.
Wells Fargo is largest U.S. bank in terms of market capitalization and the fourth largest in terms of assets. The bank is head-quartered in San Francisco. In 2008, the bank acquired Wachovia in a $14.8 billion deal.
According to the New York Times, the bank made approximately $16 billion last year. The $6.5 million amount will be diverted to a fund for investors affected by bank's foul-play.
Since 2008, the SEC agency has engaged in a number of civil actions against some of the nation's largest banks and investment firms such as Goldman Sachs, JPMorgan Chase and Citigroup, trying to hold them accountable for the mortgage crisis and consequential housing bubble burst.
