Wells Fargo Should Be Forced to Meet Subpoenas, SEC Says
Wells Fargo & Co. (WFC) failed to hand over documents demanded in U.S. subpoenas and should be forced to cooperate with a probe into its sale of almost $60 billion in residential mortgage-backed securities, regulators said.
The Securities and Exchange Commission asked a federal judge to compel the bank, the largest U.S. home lender, to deliver documents it agreed to produce under subpoenas dating from September, the agency said yesterday in a statement. The SEC said it’s looking into possible fraud by the San Francisco- based company and hasn’t concluded that anyone broke the law.
“Up until now, Wells has escaped some of the accusations that most of its competitors have suffered,” said Guy Cecala, publisher of the Inside Mortgage Finance newsletter. “It’s a credit to them that they’ve escaped as many lawsuits or challenges as they have. This may knock them off their pedestal.”
Almost four years after mounting mortgage defaults prompted unprecedented government bailouts of the financial system, regulators are still examining how banks packaged and sold home loans to investors. The SEC is looking for evidence that firms failed to disclose underlying credit weaknesses in mortgage pools and delinquencies, and has also told Goldman Sachs Group Inc. and JPMorgan Chase & Co. (JPM) that they may face civil claims.
The agency’s request, if granted, would give Wells Fargo 14 days to hand over 1,365 e-mails and attachments it has withheld from the SEC, according to a court filing. The bank said in a statement that enforcement action is unwarranted and that it will defend itself in court.
The watchdog is examining whether Wells Fargo misrepresented or omitted facts in offerings from September 2006 to early 2008, according to the statement. While the bank reviewed a sampling of loans and excluded those that failed to meet its standards, Wells Fargo may not have taken steps to address flaws in the remainder of the pool, the agency said.
Investigators are seeking information on the bank’s underwriting guidelines and on due diligence, according to the statement. The agency filed its request in federal court in San Francisco. Marc Fagel, the head of the SEC’s office in that city, declined to comment on the request.
“Wells Fargo believes the subpoena enforcement action is inappropriate and unwarranted and will vigorously defend itself in court,” Mary Eshet, a Wells Fargo spokeswoman, said in an e-mailed statement. The bank has cooperated with the agency and believed it had an understanding on the requested documents, which was violated by yesterday’s filing, she said.
“Wells Fargo is also confident that the SEC staff has inaccurately described its conduct with regard to residential mortgage-backed securities,” Eshet said.
Wells Fargo said in its annual report filed Feb. 28 that it received a so-called Wells notice from the SEC warning the bank that it may face civil claims tied to the sale of mortgage- backed securities. SEC lawyers send the notices when they intend to recommend that the agency take action.
Four days before, on Feb. 24, the SEC told the lender that it was considering enforcement measures, the agency said in yesterday’s court filing. The bank has attempted to use that as an “excuse to avoid complying with the subpoenas,” the SEC said in the filing.
Wells Fargo’s lawyer told the SEC that given the Wells notice, “We assumed the investigation was over and we had moved to a different phase,” according to the filing. The lawyer told the SEC that he might agree to “revisit the issue of any additional document production” after the SEC reviewed the bank’s submission.
The passages were quoted from an e-mail sent to the SEC by Wells Fargo’s outside counsel, Michael Missal of K&L Gates LLP, according to a copy provided by spokesman Ancel Martinez. Missal declined to comment.
“There is no basis for Wells Fargo’s refusal to comply with the subpoenas because a Wells notice, such as the staff provided, does not terminate the commission’s investigative power,” the SEC said in its filing yesterday.
The scope of the SEC’s probe “involves not just Wells Fargo’s own potential violations of the securities laws, but the roles played by other persons associated with the bank’s residential mortgage-backed securities offerings,” according to the filing.
The SEC said it has sent Wells notices to two individuals associated with the bank’s mortgage offerings. They weren’t named.
The case is Securities and Exchange Commission v. Wells Fargo & Co., 12-80087, U.S. District Court, Northern District of California (San Francisco).