Government Probes Wachovia Ties to Scammers
Bank's involvement with alleged telemarketing frausters could lead to fines.
April 16, 2008— -- Involvement with alleged telemarketing fraudsters will apparently lead banking giant Wachovia to pay "restitution," according to the company.
For several years, the North Carolina-based bank reportedly honored thousands of fraudulent transactions for more than $140 million from telemarketing scammers. Wachovia is said to have collected millions of dollars in fees, and despite numerous warnings from inside and outside of the bank, apparently never looked into the sources of the fraudulent transactions.
In February, Wachovia noted that the U.S. Treasury's Office of the Comptroller of the Currency had opened an investigation into its relationship with six commercial customers accused of defrauding consumers, many of whom were elderly. Tucked into a paragraph of a lengthy filing, the bank said it was "cooperating with government officials" in multiple investigations into itself and its former clients.
Buried in another public filing with the Securities and Exchange Commission Monday, the company said it expects it will have to pay in order to resolve the probe. "Wachovia anticipates resolution of the investigation will involve restitution," the document stated.
The bank did not disclose a potential sum, when it might pay it, or to whom it would be paid. The disclosure was first noted by the business blog footnoted.org.
A spokeswoman for Wachovia said Tuesday that nothing like a settlement had been reached, and that she had no further details to share on the matter. "We regret that the situation occurred," said Wachovia's Christy Phillips Brown. "We took this situation very seriously and took aggressive steps to correct the processes related to the situation. We're confident that the changes we've implemented will help protect consumers."
The Treasury Department did not respond to an inquiry from ABC News for details about its investigation.
Wachovia, the nation's fourth-largest bank, previously said its executives were unaware of the fraudulent transactions. But documents released in a recent court case reportedly show otherwise.
"YIKES!!!!!" was how one Wachovia executive reportedly reacted in a 2005 e-mail to colleagues, after learning the bank had received thousands of complaints over two months due to activity from a single account.
"DOUBLE YIKES!!!!!" she added, according to the New York Times' account of the message. "There is more, but nothing more that I want to put into a note."
Other banks and even federal agencies reportedly warned Wachovia of the potential fraud, but the bank reportedly did nothing. After its involvement with the fraudsters became public, Wachovia said it was reviewing its policies and procedures and had taken steps to improve them.
Gail Hillibrand, a finance and banking expert with the nonprofit group Consumers Union, said Wachovia's restitution payments -- if they come -- would be good news for consumers. "I think it could send a wake-up call to the industry, that it's time for banks who facilitate fraudsters to stop," she said.
The bank's disclosure of the likely restitution payment yesterday was hardly Wachovia's worst news. In the same filing, it alerted the public it had lost $393 million in its first quarter.