Even as Wells continues to run its two-page ads that explain how much it has changed, the more things remain the same. The latest ethical issue is Wells’ admission that it pocketed client rebates that the clients had coming from mutual funds. Under revenue-sharing plans that Wells had with mutual funds holding client investment funds, Wells was supposed to return those funds to the clients. For example, the Chattanooga Fire & Police Pension Fund board questioned Wells for months about its practices in the Wells institutional retirement and trust unit. Wells finally admitted the error to the board and refunded $15,000 of the $47,000 discovered to the Chattanooga pension fund.
Attributing the failure to return the rebates to clients, Wells explained that a “system set-up error” caused the mistake. Wells also acknowledged that other clients were affected. The Chattanooga fund has decided to fire Wells as its manager, “The Board has lost confidence that the answers provided by Wells to date are complete.” The Board also filed a whistleblower complaint with the SEC outlining its concerns about Wells and has filed a suit seeking an accounting from Wells. Because Wells has managed the Chattanooga fund since 2005, the rebates could be as much as $2 million. The Board of the Tennessee fund had a former SEC attorney conduct the investigation into the Wells management of the fund. The lawyer received four answers from Wells in asking the questions about the rebates:
1. That information was confidential and could not be disclosed.
2. That there were not rebates,
3. An acknowledgement of a problem and partial payment of $5,000
4. An admission of the set-up error and more rebate payments.
There’s that tangled wen thing again.