Illinois State Treasurer Michael Frerichs announced plans to suspend $30 billion in investment activity with Wells Fargo for one year, along with the use of the company as a broker-dealer for investments.
Illinois becomes the latest in a string of state and city municipal governments to announce they are suspending or canceling business with Wells Fargo following an enforcement action charging the bank with opening as many as 2 million unauthorized accounts for customers
In addition, Frerichs said he ordered an audit into whether other illegal activities by Wells Fargo violated Illinois’ unclaimed property laws.
“Similar audits of life insurance companies found more than $550 million that should have been paid to Illinois residents,” Frerichs said.
The treasurer said all existing relationships with Wells Fargo would undergo a review, and the moratorium on investment with the bank would last for a year, at which time it would be re-evaluated along with the corporate governance practices of Wells Fargo.
Wells Fargo makes a percentage of each transaction conducted with Illinois, whether as a broker-dealer or through repurchase or commercial paper transactions. Frerichs said the $30 billion invested with Wells in the past fiscal year would have resulted in millions of dollars in fees for the bank.
Frerichs said the recent actions by Wells Fargo “required a strong response.
“As chief banking officer of the state I’m responsible for overseeing nearly $1 trillion in investment activity. My role to safeguard the state’s money is something I take seriously,” he said. “We have a choice where we invest taxpayer money. We will not reward companies that irresponsibly open new bank accounts and improperly repossess vehicles of members of our armed forces."
Frerichs called Wells Fargo’s action illegal and “downright shameful.”
The audit into accounts, similar to previous audits with the life insurance companies, would determine whether unauthorized accounts re-set the five-year clock for when Wells Fargo would escheat dormant funds back to the state.
Accounts which are dormant for five years are required to be turned over to the state under unclaimed property laws, so the state can return the funds to the rightful owner or their heirs. Frerich said auditors will determine whether activity with fees charged to unauthorized account may have fraudulently turned dormant accounts into active ones.
“We’ll send the auditors in and see whether there’s maybe millions of dollars that should be going to Illinois residents,” he said.
Finally, Frerich said his office had written the state’s pension fund managers to encourage them to review their investment activity with Wells Fargo, as well as asking the state’s office of management and budget to review all state contracts held with the bank.