Wells Fargo faces another potential class action lawsuit in the growing controversy involving the bank's cash-laundering deposit programs.
Scotch Plains, NJ-based Daniel Varady filed his lawsuit seeking a class action in California federal court. His charges mirror other recent calls for class actions against money laundering programs Wells Fargo, LPL and Ameriprise. Varady argues that the bank was obliged to negotiate “reasonable” rates of return on uninvested customer money.
“While Wells Fargo customers received artificially and unreasonably low rates, Wells Fargo received the difference between what it agreed to pay its customers and the program banks are willing to pay Wells Fargo for large cash deposits — a much that is not disclosed to Wells Fargo customers,” the complaint said.
Like many firms, Wells Fargo will often take customer money not used for trading and transfer it (or “wipe” it) to “interest-bearing” accounts at banks, many of which are affiliated with Wells Fargo, according to the lawsuit.
But Varady claimed Wells Fargo customer accounts have low rates of return, as low as 0.05% for accounts with less than $1 million in assets (compared to an average savings account interest rate of 0.45%).
Varaday argued that those interest rates with banks affiliated with Wells Fargo were set “in consultation” with the bank and that unrelated banks were required to set their rates the same as affiliated banks to participate in the cleanup program.
“This kept the interest Wells Fargo customers earned on their money laundering deposits artificially low and was a violation of Wells Fargo's legal and contractual obligations to its customers,” the complaint said.
The complaint marked Wells Fargo's admission late last year that the Securities and Exchange Commission was investigating the firm's money-laundering program and that last month, Wells Fargo revealed it would raise interest rates on its money-laundering programs. money, reducing the firm's revenue by about $350 million. per year.
Thus, Wells Fargo had an obvious financial incentive to keep interest rates artificially low in order to maintain the 'spread' it earns, ie. net income, higher than it would have been if the plaintiff and class members had received a reasonable interest rate. “, the complaint said.
Wells Fargo did not return a request for comment before publication, though its most recent quarterly filing noted that the firm was “in settlement discussions with the SEC,” though it could not say for sure what the outcome of the discussions would be.
In addition to Wells Fargo, both Bank of America and Morgan Stanley revealed plans to change their overall pricing. However, LPL Financial CEO Dan Arnold said his firm had “no plans” to change its wipe policies (like Wells, LPL faces several lawsuits seeking class actions related to cash wipes).
last week, Morgan Stanley also disclosed that the SEC was investigating its money laundering programs, as Wells Fargo admitted last year. Morgan Stanley is also facing two lawsuits related to its money laundering programs, according to recent SEC filings.
According to Max Schatzow, a partner with RIA Lawyers, the reason so many firms are defendants in money laundering price lawsuits now is because interest rates have risen over the past several years. Shatzow noted that when interest rates were at or around zero, most people didn't care what money laundering program was used or what the rates were.
“At that stage, there was no lawyer for the applicant willing to deal with these matters,” he said. “But with the increase in fees, I think there are people who are willing to argue that their broker/dealer may not have fulfilled their duty to their customers.”