Wells Fargo has disclosed in a regulatory filing that the US Securities and Exchange Commission (SEC) has undertaken an investigation into the bank’s advisory account cash sweep options for investment advisory clients.
The American financial services company offers cash sweep options to investment advisory clients when they open their accounts.
The sweep feature enables clients to generate a yield on unused cash balances.
Wells Fargo provides three sweep alternatives called The Standard Bank Deposit Sweep, Expanded Bank Deposit Sweep, and the Money Market Fund Sweep. These options allow uninvested cash to be placed into interest-earning accounts or money market funds.
The qualification for the sweep options is determined by the specific investment account type and the account’s ownership structure.
Wells Fargo has been addressing its compliance issues and attempting to rectify the damage caused by a previous scandal related to its sales practices. However, these endeavours have occasionally faced renewed scrutiny as a result of investigations into unrelated matters, reported Reuters.
One such issue revolved around a hiring policy that mandated the lender to interview a “diverse” pool of candidates for certain positions, with a requirement that half of the candidates be either female or nonwhite. This policy faced scrutiny last year after The New York Times reported that the bank had carried out “mock” interviews for positions that were not vacant.
In a filing earlier this week, Wells Fargo revealed that the US Department of Justice had concluded its investigation into the bank’s diversity-related hiring practices without taking any action. However, the matter remains under scrutiny by the SEC, said the bank.
According to the bank, a potential securities fraud class action has been initiated in the US District Court for the Northern District of California. This lawsuit alleges that the company, as well as some of its executive officers, issued inaccurate or deceptive statements concerning its diversity-related hiring practices.
In August 2023, Wells Fargo agreed to pay a civil penalty of $35m to settle the SEC’s charges that the bank’s affiliates had charged excessive advisory fees to more than 10,900 investment advisory accounts.
Prior to that, in May, Wells Fargo reached an agreement to pay $1bn to its shareholders to resolve a lawsuit pertaining to its unauthorised accounts scandal in 2016.
