U.S. Investigating Foreign-Exchange Trading at Wells Fargo -- Update
October 27 2017 - 12:25PM
Dow Jones News
By Emily Glazer and Nicole Hong
Federal prosecutors are investigating foreign-exchange trading
at Wells Fargo & Co. and have subpoenaed information from the
firm and recently fired bankers in that business, according to
people familiar with the matter.
The investigation, which is in the early stages, is being
conducted by the U.S. Attorney's Office for the Northern District
of California, some of the people said. The office subpoenaed
information in recent days, according to some of the people. Last
week, The Wall Street Journal reported that Wells Fargo had fired
four foreign-exchange bankers amid an internal investigation.
Issues within the bank's foreign-exchange operation revolve
around a single trade and ensuing dispute with one client,
Restaurant Brands International Inc., the people said. This company
is the owner of Burger King, Tim Hortons and Popeyes Louisiana
Kitchen, and -- like Wells Fargo -- counts Warren Buffett's
Berkshire Hathaway Inc. as a major shareholder.
In a statement, Wells Fargo said it "learned of an issue
associated with a foreign-exchange transaction for a single client.
The matter was reviewed, the client was promptly notified regarding
the issue, and Wells Fargo leadership took steps to hold
accountable the individuals who were involved. Wells Fargo remains
committed to our foreign-exchange business, meeting our clients'
financial needs in an ethical way, and ensuring ongoing review of
this and all business operations."
A spokesman for the Northern District wasn't immediately
available to comment.
Investigations into Wells Fargo's foreign-exchange business,
which is housed within its investment bank, are separate from
sales-practices issues that rocked the bank more than a year ago.
But they come at a sensitive time for the bank: Wells Fargo remains
under political and regulatory pressure because of the sales
scandal, which remains under separate investigation by the Justice
Department and other agencies. The U.S. Attorney's Office for the
Northern District also is involved in one of those
investigations.
The foreign-exchange issue revolves around a trade made within
the past three years that included positions running into the
billions of dollars for Restaurant Brands, the people said. The
trade resulted in a loss to Restaurant Brands, the people added,
which led to a dispute between it and the bank.
Wells Fargo is planning to refund Restaurant Brands hundreds of
thousands of dollars because of the loss, one of the people
familiar with the matter said.
In addition to the Justice Department, potential issues around
the Wells Fargo trade also are being examined by the Federal
Reserve, some of the people said.
The bank recently fired the four foreign-exchange bankers for
cause and launched an internal investigation, according to people
familiar with the matter. Those fired were Simon Fowles, recently
head of foreign-exchange trading; Bob Gotelli, recently head of
foreign-exchange sales; Jed Guenther, recently a regional head of
foreign exchange; and Michael Schaufler, chief spot dealer, The
Wall Street Journal has previously reported.
A spokeswoman for the bank has confirmed that these individuals
no longer work for Wells Fargo.
The bankers didn't respond to requests for comment.
Federal prosecutors are looking into the sequencing of the trade
in question and whether it could have involved so-called
front-running, some of the people familiar with the matter said.
Front-running typically involves a trader jumping ahead of a
client's order, buying or selling for their own account to profit
when the larger transaction moves a price.
In its statement, Wells Fargo said, "The departure of these
employees was not related to issues involving market collusion,
front-running or market manipulation."
Potential front-running is often difficult to gauge given the
ambiguity around pre-hedging strategies in currency trading.
Typically a bank must purchase currency as part of a trade and
price it differently than it would, say, a stock purchase. In the
latter case, the customer is typically charged what the bank pays a
broker dealer for the trade.
But with currency trading there are ambiguities around how
bankers phrase the pricing to the customer and how the trade is
executed.
Earlier this week, a federal jury in Brooklyn found a former
high-ranking HSBC Holdings PLC executive guilty on charges that he
misused information about a client's $3.5 billion currency trade to
make millions of dollars for the bank.
Wells Fargo's investment-banking, securities and markets
division, known as Wells Fargo Securities, is a fraction of the
size of its U.S. big-bank peers, as is its foreign-exchange
business. The bank doesn't break out financial results or metrics
for that group or its foreign-exchange business.
--Julie Jargon and Ryan Tracy contributed to this article.
Write to Emily Glazer at emily.glazer@wsj.com and Nicole Hong at
nicole.hong@wsj.com
(END) Dow Jones Newswires
October 27, 2017 12:10 ET (16:10 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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