SEC takes Wells Fargo to court to enforce subpoenas

Fri Mar 23, 2012 7:04pm EDT

A customer uses an ATM machine at a Wells Fargo bank in Los Angeles, Calfornia March 8, 2012. REUTERS/Fred Prouser

A customer uses an ATM machine at a Wells Fargo bank in Los Angeles, Calfornia March 8, 2012.

Credit: Reuters/Fred Prouser

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(Reuters) - U.S. securities regulators accused Wells Fargo & Co on Friday of repeatedly ignoring its subpoenas for documents in connection with a probe into the bank's $60 billion sale of mortgage-backed securities.

The Securities and Exchange Commission's filing in a San Francisco federal court seeks to compel the fourth largest U.S. bank to hand over documents. The SEC said it has issued several subpoenas since September.

A Wells Fargo spokeswoman called the SEC's action "inappropriate" and pledged the bank would "vigorously defend itself in court" against the SEC action.

"Wells Fargo has extensively cooperated in the commission's investigation and believed it had an understanding with the SEC staff with regard to the outstanding document requests; the filing of this action violates that understanding," said Wells Fargo spokeswoman Mary Eshet.

The SEC said on Friday it is looking into whether Wells Fargo made "material misrepresentations or omitted material facts" in offerings it made to investors from September 2006 through early 2008, a period that included the beginnings of the financial crisis.

The SEC charges that a due diligence review of a sampling of the securitized loans was done, and some of those loans would be dropped because they failed to meet the bank's underwriting standards.

But the regulator said it "does not appear that Wells Fargo took any steps to address similar deficiencies in the remainder of the loans in the pool, which were securitized and sold to investors."

Eshet said that the SEC had inaccurately described its conduct with regard to residential mortgage backed securities and that no enforcement action was warranted.

Several major US banks, including Bank of America Corp and Goldman Sachs Group Inc have faced intense scrutiny from regulators, investors and politicians over their packaging and marketing of mortgage debt, including whether they properly disclosed the risks.

Much of that debt proved riskier than expected, and was a major factor in both the 2008 financial crisis and the roughly five-year U.S. housing slump.

The SEC's subpoena enforcement action against Wells Fargo is a rather unusual legal maneuver.

One of the last more high-profile instances of the SEC seeking compliance with a subpoena occurred in September when it asked a federal court to compel a unit of accounting giant Deloitte & Touche to produce records in connection with a fraud probe at China-based Longtop Financial Technologies Ltd.


According to the SEC's Friday filing against Wells Fargo, the agency has issued six subpoenas to Wells Fargo since September 30. The SEC said in its complaint it wants the bank to provide the documents in 14 days.

In the complaint, the SEC said on February 24 the commission staff notified Wells Fargo that it was considering filing a civil suit for securities law violations. The banks disclosed the notice in its February 28 annual report.

According to an email included in the court filings, a lawyer representing Wells Fargo on March 14 told an SEC attorney that the bank assumed the investigation was over after it received the enforcement notice. The bank could revisit the issue of any additional document production after filing its response to the notice, the lawyer wrote.

Among the types of documents the SEC is seeking are loan underwriting guidelines, due diligence reports, drafts of prospectus supplements, staff training materials, preliminary loan data and 1,365 emails.

The SEC said that Wells Fargo had initially balked at turning over the emails based on attorney-client privilege, but then later reversed course and promised to turn them over in short order.

In some cases, the SEC said the bank has provided regulators certain documents, but has still failed to confirm it produced all of them.

In other cases, such as with the emails, the SEC contends it has still not received them.

Most recently, the SEC said, Wells Fargo "failed to complete its production of responsive documents" despite setting a self-imposed deadline of March 7.

The agency also disclosed that it has separately sent notices to two individuals involved with Wells Fargo's mortgage-backed securities offerings warning it may bring enforcement actions against them.

The case is SEC v. Wells Fargo & Co, U.S. District Court, Northern District of California, No. 12-mc-80087.

(Reporting By Sarah N. Lynch in Washington and Rick Rothacker in Charlotte, N.C.; Additional reporting by Jonathan Stempel in New York; Editing by Tim Dobbyn)

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Comments (3)
drmorocco wrote:
Arrest and jail the CEO as well as the members of the Board of Directors until the materials are produced.

Mar 23, 2012 5:25pm EDT  --  Report as abuse
When I contacted Hells Cargo to demand a complete set of loan documents they provided a small fraction of what I demanded and stated in their response,” any additional information is proprietary and will not be provided without a subpoena. Call our Subpoena Hotline at xxx.
Just for kicks I called that number and never once in 12 attempts calling once a week for three months did I ever connect the call. It was busy, dropped or simply failed to connect.
As far as telling a homeowner “your loan documents are proprietary” that was all I needed to read. I filed a Quiet Title action last week against the loan originator, Hells Cargo and MERS.
Now we’ll find out what all those secret files contain. My guess is there’s a barrel of broken title chains in there and it may turn out Hells Cargo was receiving loan payments without being a legal party to the transaction.
With the SEC stepping in now we’ll see how Lil’Timmy Geithner’s “Mark to Model” holds up against a true valuation of the banks holdings. My advice: investors better cover their assets. There’s a storm brewing.

Mar 23, 2012 6:17pm EDT  --  Report as abuse
missled wrote:
What I’ve found in my case with Wells Fargo, is that the Judge totally overlooked that WF never produced any documents. I filed pro se and the judge was very biased for that reason alone. WF took what I produced and transferred signatures. They fudged documents including assignment from MERS. Judge would not even respond to affidavit of audit that proved forgeries. Wells Fargo bought to the stand a newly hired attorney wearing the title of bank exec. calling himself a paralegal. I believe no Judge will see that WF cannot produce authentic documents. If the ones who supposedly uphold the laws are a part of it, then how can anyone get out from under this injustice?

Mar 29, 2012 3:24pm EDT  --  Report as abuse
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