Friday, December 30, 2016

SEC Questions Wells Fargo’s Loan Accounting Practices

How can my business defend against a SEC investigation?

Scrutiny into megabank Wells Fargo continues as the U.S. Securities and Exchange Commission joined several other agencies in investigating Wells Fargo’s accounting for its $20 billion troubled loan portfolio.  In a letter dating back to September, but just recently made public, the Securities and Exchange Commission (SEC) asked the bank to explain how Wells Fargo reached its valuation of the portfolio, which was mainly acquired through the bank’s purchase of Wachovia. 

Wells Fargo purchased Wachovia for $13.3 billion in 2008.  At the time, Wachovia was on the brink of collapse, in large part due to its billions of dollars in losses related to its loan portfolio.  Now, Wells Fargo is being asked by the SEC how it is valuing its so-called “Pick-a-Pay” portfolios.  Valuations play an important role in Wells Fargo’s earnings, but they involve some guesswork. The SEC has requested that Wells Fargo account for its valuations as some have questioned their accuracy.

This SEC review is just the latest in regulatory issues faced by Wells Fargo in recent months.  In September, Wells Fargo agreed to pay $185 million in fines due to regulatory complaints concerning over two million fraudulent customer credit and checking accounts.  Along with the SEC, the U.S. Justice Department, state attorney generals, and two congressional committees are investigating the embroiled bank. 

Defending SEC Investigations 

The SEC is a powerful agency with wide-ranging investigative powers.  SEC investigations can be either formal to informal, and litigation can take place in an administrative hearing or a federal district court.  Defending against a formal or informal SEC investigation will require a similar approach.  Often, the investigation will be initiated with a subpoena requesting the production of documents or testimony.  Your New York City Securities Exchange Act reporting attorney will take immediate action to preserve the relevant materials.  Destruction of documents or failure to comply with the subpoena could result in harsh penalties

A SEC investigation can have serious implications for your business, regardless of the outcome.  Your securities exchange act reporting attorney will take swift action to protect your business and legal interests during this sensitive time.  

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