After recent allegations that Wells Fargo had defrauded unsuspecting customers, the state of Illinois will suspend investment activity with the financial services firm — investments that totaled $30 billion last year alone.
State Treasurer Michael Frerichs announced that move Monday morning and placed a one-year moratorium on using Wells Fargo as an investment broker. Illinois follows California, which issued a similar decree against the firm last week.
Wells Fargo earns a cut of each investment transaction it brokers for the state. The percentage is not disclosed to state officials. “I wouldn’t say it’s tens of millions of dollars … but millions of dollars,” Frerichs said of the money Wells Fargo made last year off the deals.
“We asked them” how much they made off Illinois accounts, deputy treasurer Jay Rowell said, noting that Frerich’s office had been in touch with two Wells Fargo executives to share news of the moratorium. “But we’re not doing business with them anymore so I’m not sure they’re going to get back to us on that issue.”
The $30 billion in state investments — a fraction of the approximately $1 trillion Illinois invests annually — will go to other institutions the state does business with, Frerichs said.
The fraud scandal that caused Frerichs to take action erupted last month when it came to light that Wells Fargo employees, under pressure to reach performance goals, fraudulently opened approximately two million unauthorized deposit, credit card, debit card, and online banking accounts for customers from 2011 to 2015 and extracted millions of dollars in fraudulent fees.
“Their unscrupulous practices are not welcome and will not be tolerated,” Frerichs said, noting that other contracts with Wells Fargo that the state is under contractual obligation to perform are under review.
“This is the first step we can take today,” he said.
Frerichs also said the misconduct at Wells Fargo may have jeopardized a key task his office undertakes: finding the rightful owners or heirs of accounts left dormant for five years — often by people who died or simply forgot about them.
The five-year mark is supposed to trigger an alert to Frerichs’ office. But he fears the fraudulent accounts opened at Wells Fargo might have somehow “reset the clock” on otherwise dormant accounts that would have been brought to his attention.
In response, Frerichs announced Monday his office would conduct an audit on Wells Fargo to ensure that the stale cash — potentially millions — goes to the rightful owners.
The San Francisco-based megabank has become a political punching bag.
Ald. Ed Burke took a swing last week.
Burke, who chairs the city’s finance committee, moved to ban Wells Fargo from receiving any city business for two years.
If approved, the ban would prohibit Wells Fargo from receiving city deposits, serving as an underwriter on city bond issues or trustee in any loan or redevelopment agreement. Wells Fargo would also be banned from brokering to buy investments on the city’s behalf or serving as a financial adviser.
The two-year ban is not an empty threat. Since 2005, Wells Fargo has received $19 million in fees from the city for a variety of financial services.
In 2013, under Mayor Rahm Emanuel, Wells Fargo expanded its footprint in Chicago by opening a regional headquarters at the CME Center in the West Loop.
At the time, Wells Fargo announced it had more than 800 employees in Chicago.
Contributing: Fran Spielman; Associated Press