Wells Fargo New York headquarters at 150 E 42nd St. Photo: John Taggart/Bloomberg

Wells Fargo will pay New York state $65 million after producing fraudulent statements to investors about its “cross-sell” business model, which led the bank's employees to open millions of fake accounts without customers' knowledge, Attorney General Barbara Underwood said Monday.

The penalty is part of an investigation by the state into the bank's business practices, which came under scrutiny in 2016 when federal regulators revealed employees had created more than 2 million fake accounts to meet sales targets.

Underwood's office said Monday's announcement will have no impact on its ongoing investigation into Wells Fargo over the fake accounts or other pending investigations. Underwood said in a statement that investors were misled by the bank.

“The misconduct at Wells Fargo was widespread across the bank and at every level of management—impacting both customers and investors who were misled,” Underwood said. “State securities laws are vital to protecting the hard-earned savings of working families and Main Street investors from financial fraud, and my office will continue to do what's necessary to protect the public and the integrity of our markets.”

Wells Fargo said in a statement that it did not admit liability in agreeing to the penalty, but that it is another step forward in rebuilding public trust.

“Wells Fargo did not admit liability, and we believe that putting this matter behind us is in the best interest of all of our stakeholders, including customers. The settlement costs have been previously accrued,” the bank said. “We are making strong progress in our work to rebuild trust, and this represents another step forward.”

According to Underwood's office, Wells Fargo told investors that it would be able to increase revenues and better serve customers by “cross-selling.” The practice refers to selling new financial products or services to an already existing customer. The bank regularly reported cross-selling metrics to investors that supposedly showed success in the practice, according to Underwood's office.

The bank did not, however, tell investors that the success of its cross-selling strategy came from fraudulent sales practices, driven by unrealistic sales goals, Underwood's office said. Employees who met the targets were apparently eligible for promotions and bonuses while those who did not were pressured to do more and, in some cases, fired.

Former Wells Fargo CEO John Stumpf told Congress that he became aware of the misconduct as early as 2013. Investors in New York lost millions of dollars when the bank announced the fraudulent practices in 2016, Underwood's office said.

The $65 million penalty is on top of a $142 million class action settlement for customer remediation and settlement expenses Wells Fargo entered into over the fraudulent accounts last year. The bank was separately fined $1 billion by federal regulators last year for signing up and charging customers for car insurance they didn't need and imposing unfair fees on mortgage borrowers.

The company said on its website that it has taken several steps since 2016 to reform how it does business. It no longer tracks metrics on cross-selling and does not base employee performance on the practice. It has also pledged to improve risk management, oversight of its business practices, and compliance with state and federal regulations.

Senior Enforcement Counsel Hannah Flamenbaum and Assistant Attorneys General Melissa Gable and Amita Singh of Underwood's Investor Protection Bureau handled the agreement announced Monday. The office is uniquely positioned to handle such disputes under the Martin Act, which allows the state attorney general to investigate cases of suspected securities fraud.

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