The US Securities and Exchange Commission (SEC) [official website] announced Tuesday that Wells Fargo [corporate website] will pay a $6.5 million fine [order, PDF] for improperly selling high-risk mortgage securities to investors during the housing market crash in 2007. The SEC claimed that Wells Fargo did not adequately inform investors of the risk or complexity of the securities it sold. In its order, the SEC declared that Wells Fargo violated Section 17 of the 1933 Securities Act [LII backgrounder] for fraudulently selling securities:
Wells Fargo...[was], at a minimum, negligent in recommending the relevant asset-backed commercial paper programs without obtaining adequate information about them to form a reasonable basis for recommending these products and without disclosing the material risks of these products. As a result, Wells Fargo...violated Sections 17(a)(2) and 17(a)(3) of the Securities Act.The SEC also ordered Wells Fargo to pay $81,571 in restitution.
Wells Fargo [JURIST news archive] has been involved in many legal battles recently. Last month, the US Court of Appeals for the Ninth Circuit [official website] dismissed a lawsuit against several banks, including Wells Fargo, that accused the banks of price-fixing [JURIST report]. In March, the SEC filed a subpoena enforcement action [JURIST report] against Wells Fargo to force the company to hand over documents connected to the company's sale of nearly $60 billion in residential mortgage-backed securities to investors. Earlier in March, Wells Fargo and the country's four other largest mortgage service providers reached a $25 billion settlement [JURIST report] with the Department of Justice, the Department of Housing and Urban Development [official websites] and 49 state attorneys general over mortgage loan servicing and foreclosure abuses. The settlement was initially announced [JURIST report] in February. The settlement does not prevent civil suits by individual homeowners or criminal charges pursued by federal or state authorities.