Wells Fargo (WFC) Scandal Could Get Even Uglier, So Sell The Stock Now - TheStreet

On Sept. 8, the Consumer Financial Protection Bureau and other state and federal agencies imposed $185 million in fines on Wells Fargo (WFC) - Get Report  related to employees opening unauthorized accounts in customers names.

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The announcement of the CFPB's investigation led to Wells Fargo's Chairman and Chief Executive John Stumpf being called in front of the U.S. Senate Committee on Banking, Housing and Urban Affairs, and he is due to testify before the House Financial Services Committee on Thursday.

As a result of the scandal, Wells Fargo investors should sell the stock.

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This week, Wells Fargo said that it will take back unvested stock worth $41 million from Stumpf and $19 million from Carrie Tolstedt, the executive who led the retail banking division. She was scheduled to retire in December, but in light of the scandal has instead stepped down immediately without severance or a bonus.

Stumpf will also forgo his $2.8 million salary while the bank investigates the practices that led to more than 1.5 million unauthorized accounts being opened. But, Sen. Elizabeth Warren (D-Mass.) thinks that he and the rest of Wells Fargo's upper management should be punished more.

As a number of tweets from her pointed out, employees who failed to meet Wells Fargo's outrageous sales goals were fired and he still has a job, despite being the leader of the bank. But Warren has also called for investigations into Wells Fargo by the Department of Justice and the Securities and Exchange Commission.

Nevertheless, the situation worsens every day, confirming that Wells Fargo's stock should be avoided.

On Wednesday, California's treasurer said that Wells Fargo is suspended from doing business with the state government for at least the next 12 months. 

California State Treasurer John Chiang said that the Wells Fargo situation is "a legal and ethical outrage" and that the company displayed a "reckless lack of institutional control."

Investing guru Warren E. Buffett recently said that he won't comment on Wells Fargo's travails for now.

He is chief executive of and the largest shareholder of Berkshire Hathaway, which owns 10% of Wells Fargo's shares.

"If I start commenting on that or anything else, it will lead down too many paths so I will wait until November to speak about it, the election or any other subject," Buffett said.

But it is hard to imagine Buffett sitting back and doing nothing.

At Berkshire Hathway's annual meeting each year, he plays a video of himself testifying in front of Congress saying, "Lose money for my firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless."

One could argue that Wells Fargo has only lost Buffett's money at this point, but the longer this story goes on, the more likely it is that Berkshire Hathaway could take a hit to its reputation.

Ultimately, however, all investors really want to know is whether Buffett is is buying or selling Wells Fargo's stock during this crisis. 

Over the past month, Wells Fargo's stock is down more than 8.5%, meaning that he wouldn't be losing a ton of money if he were selling or getting a great deal if he were buying, and the same can be said for retail investors. However, Buffett is known for investing in stocks for decades, and many investors don't fall into that same category.

So no matter what we find out about his position in Wells Fargo, it doesn't mean that individual investors should follow suit. This Wells Fargo situation may keep getting worse. 


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The author is an independent contributor who at the time of publication owned shares of BAC, BRK.A and JPM.